BUY, SELL, HOLD (2)

Buyout Buzz, Earnings Boost Pandora Media Inc (P) Options Volume

Pandora Media Inc (NYSE:P) will take its turn in the earnings confessional after tonight's close

Jul 21, 2016 at 3:02 PM
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Pandora Media Inc (NYSE:P) spiked 10% earlier after The Wall Street Journal reported the streaming music service's board of directors recently rebuffed a $15 per share buyout bid from Liberty Media Group (NASDAQ:LMCA) -- parent company of Pandora rival Sirius XM. P stock has since erased these gains, last seen down 1.2% at $12.20. Meanwhile, ahead of Pandora's turn in the earnings confessional this evening, the stock's options pits are buzzing, with volume running at six times the average intraday clip.

By the numbers, with 20.4 million P shares traded so far today -- in the 97th annual percentile -- around 18,000 call options and 19,000 put options have changed hands. It looks like one speculator hoping for a post-earnings volatility crush may have initiated a short straddle using P's weekly 7/22 12.50-strike put and call.

Elsewhere, more traditional speculators may be buying to open weekly 7/29 12.50-strike puts and weekly 7/29 12-strike calls. For those purchasing the puts, the goal is for P to end south of the strike at next Friday's close -- when the weekly series expires -- while call buyers are hoping today's positive price action continues over the next six sessions.

More broadly speaking, put buying has been picking up the pace in the weeks leading up to tonight's scheduled event. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the security's 10-day put/call volume ratio of 0.69 rests higher than 91% of all comparable readings taken in the past year.

This skepticism is seen elsewhere on the Street, as well. In fact, despite short interest dropping 7.3% in the most recent reporting period, these bearish bets still account for more than one-quarter of P's available float. Plus, it would take nearly eight sessions to cover all of these shorted shares, at the equity's average daily pace of trading.

Technically, it's not hard to see why pessimism is running high toward P. Since hitting an annual high of $22.60 last September, the shares have surrendered over 45%. Plus, the stock has pulled back to its 40-day moving average -- a potentially bearish signal. Specifically, according to Schaeffer's Senior Quantitative Analyst Rocky White, in the six other times this has occurred in the past three years, P has gone on to average a 21-day loss of 11.7%, and has been positive just 20% of the time.

Meanwhile, the stock could be poised for a volatile session after Pandora Media Inc (NYSE:P) reports earnings tonight. In the past eight quarters, the equity has averaged a single-session post-earnings move of 14% -- in line with what the options market is pricing in for tomorrow's trading.

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