Post-Earnings Options Players Target Pandora Media Inc (P)

Pandora Media Inc (NYSE:P) is up 3.6% to $12.43, as a narrower-than-expected quarterly loss overshadows disappointing revenue and guidance. In fact, the stock is also shaking off bearish brokerage attention, including a downgrade to "underweight" from "sector weight" at Pacific Crest, which also cast doubts on the company's prospects for a buyout. "While M&A is possible, we do not view it as likely at the current valuation," said the brokerage firm. Meanwhile, three other analysts cut their price targets. Regardless, as shares of P climb the charts, the stock's options pits are buzzing, with contracts trading at 10 times their usual intraday rate.

Calls nearly triple puts today, with more than 53,000 on the tape -- on pace to finish in the 98th percentile of its annual range. Accounting for a huge chunk of the action is the January 2017 14-strike call, where 31,242 contracts have changed hands. It appears some buy-to-open action has occurred here, pointing to two possibilities: either bullish traders are betting on long-term gains for P, or current short sellers are picking up options insurance to hedge against further upside risk.

At least one speculator should be happy with today's action -- yesterday's trader who initiated a short straddle at P's weekly 7/22 12.50-strike put and call. The expected post-earnings volatility crush has dropped the combined volume weighted average price (VWAP) for these two options from $1.41 on Thursday to $0.49 today. That means, by buying to close the straddle, the trader would collect a net profit of $0.92 cents each.

Elsewhere, P's weekly 7/22 series accounts for half of today's 10 most active options. With volume outstripping open interest at almost all of these strikes, it seems speculators are placing eleventh-hour bets ahead of expiration at tonight's close.

While calls dominate today's options volume, put buying has been popular in recent weeks. And that's not nearly the only sign of bearish sentiment toward P, as short interest makes up one-quarter of its float, and more than half of covering analysts rate the share a "hold." But this pessimism is hardly surprising, considering Pandora Media Inc's (NYSE:P) long-term technical performance, down over 7% year-to-date.

Sign up now for Schaeffer's Market Recap to get all the day's big stock movers, must-know technical levels, and top economic stories straight to your inbox.