Price Of Shorting Groupon? Look At The Options

As of Tuesday’s close, at-the-money Groupon (GRPN) put options traded at a pretty hefty premium to the same strike calls. For example, with the stock at 24.07, the December 24 puts were bid at $2.75 with the same strike call offered for $1.55.

Why the difference? The stock is hard to borrow – really hard to borrow, and expensive too – really expensive.

Reuters says the “negative rebate” (the cost to borrow shares to short) was about 90% to 100% last week. That’s an annual charge, which works out to about 4 cents per share per day – or roughly $120 per month for 100 shares.

What do the options say?

Now let’s take a look at those December options

Let’s say you bought the December 24 call for $1.55 and sold the December 24 put for $2.75. You’d get a net credit of $120. Here’s how each position looks at expiration.

Combine them, and they become a “synthetic long stock” position at 22.80 – the 24 strike less the premium you collected. So now you’re essentially long the stock as shown here

But if you’re synthetically long at 22.80 and plain short at 24.07 – and you collected a net credit of $120 – you make $127 regardless of where the stock ends up as you can see here:

The green area above shows that $127 locked-in profit.

That’s pretty darned close to the $120 “negative rebate” that Reuters says shareholders are charging.

Will borrowing costs drop?

If we look at all the options in the series, we end up with the following chart showing the credit you’d “lock in” if you could short the stock –with both the net amount and the cost per day.

It’s clear that traders are willing to accept less of a credit on a per day basis well into the future. And that could indicate that these “negative rebates” could get a lot less negative.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.