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Pandora Media Inc (NYSE:P) calls are trading at a faster-than-usual pace this morning, ahead of the Internet radio issue's turn in the earnings confessional tonight. Specifically, 21,000 calls are on the tape -- triple the intraday average rate, and seven times the number of puts traded so far.
Most active by a mile is P's September 35 call, which has seen north of 12,500 contracts switch hands, including a multi-exchange sweep of 11,010. Roughly 94% have traded at the ask price, volume outstrips open interest at the strike, and commentary from Trade-Alert points to buy-to-open activity.
Essentially, these speculators are aiming for Pandora shares -- currently hovering at $28.17 -- to rally by about 24% during the next five months and topple the 35 strike by September options expiration. If the stock doesn't meet those expectations, and the option expires out of the money, the most the call buyers stand to lose is the initial premium paid, assuming they're still holding onto the contracts. For the trader who initiated the sweep, the maximum loss would be nearly $1.9 million (11,010 contracts * 100 shares per contract * the volume-weighted average price of $1.71 per contract).
Taking a step back, Pandora call buying has become a trend over the past 10 weeks on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Specifically, P boasts a 50-day call/put volume ratio of 1.95 on those three exchanges, with calls bought to open nearly doubling puts. Significantly, this ratio is higher than 84% of similar readings from the past year, indicating a stronger-than-usual preference for long calls relative to puts.
As alluded to earlier, Pandora Media Inc (NYSE:P) is slated to report first-quarter earnings this evening. Looking back, the company has matched or topped analysts' consensus bottom-line estimates in each of the last eight quarters. However, on average, the shares have lost 0.3% in the subsequent session, including 10.1% after February's news. Tonight, the Street is calling for a per-share loss of 14 cents from P.