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Option Clips: Pandora Media Inc, Microsoft Corporation, and FireEye

Reviewing notable options activity on Pandora Media Inc, Microsoft Corporation, and FireEye Inc

by 5/20/2014 1:08 PM
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Three names seeing notable option activity today amid developing news and/or unusual price action are streaming music provider Pandora Media Inc (NYSE:P), software giant Microsoft Corporation (NASDAQ:MSFT), and cyber-security name FireEye Inc (NASDAQ:FEYE). Here's a look at how today's option traders have been placing their bets on these three names.

  • Pandora Media Inc (NYSE:P) is 4.1% higher at $25.65, despite a pre-market price-target cut to $30 from $41 at Susquehanna. The company is presenting at a B. Riley conference this afternoon, and one media outlet is attributing today's surge to M&A rumors. Whatever the motive, P options are trading at three times the typical intraday rate, and one speculator is either rolling up a bearish position, or implementing a bear put spread at the September 21 and 23 strikes. If it's the latter, the spread was established for a net debit of $0.81 per pair of puts, and will profit as long as P finishes south of breakeven at $22.19 (bought put strike minus net debit) on Friday, Sept. 19, when the options expire. Due to the sold 21-strike puts, though, profit potential is limited to $1.19 per pair of puts (difference between strikes minus net debit), no matter how far P should sink within the options' lifetime, while risk is capped at the initial net debit.

  • Microsoft Corporation (NASDAQ:MSFT) is 0.5% lower at $39.55, as traders digest the new Surface Pro 3 -- the company's larger, thinner, faster version of the Surface tablet -- unveiled today. Options traders are taking advantage of relatively low premiums to gamble on MSFT's short-term trajectory. Earlier today, the security's 30-day at-the-money (ATM) implied volatility (IV) hit a 52-week low, and was last seen 0.2% lower at 15%. What's more, the equity's Schaeffer's Volatility Index (SVI) rests at a 12-month low, underscoring the relative affordability of MSFT's short-term contracts. So far today, the stock's weekly 5/23 40-strike calls are most active, with nearly 3,300 contracts exchanged -- mostly at the ask price, suggesting they were bought. Plus, IV is trending higher at the strike, and volume has exceeded open interest, hinting at fresh initiations. By purchasing the calls to open, the buyers expect MSFT to climb back atop the round-number $40 level by Friday's close, when the weekly options expire.

  • Finally, FireEye Inc (NASDAQ:FEYE) has rallied 8.5% to $31.37, amid escalating cyber-security tensions between the U.S. and China. Intraday options volume is running at three times the average pace, with demand for FEYE's short-term contracts on the rise, as evidenced by the stock's 30-day ATM IV of 75.6% -- an increase of 5.3% from yesterday's close. Option bulls are wagering on more upside for FEYE this week, buying to open the weekly 5/23 31.50-strike call. Nearly 3,200 calls have traded at the strike, and 80% have gone off at the ask price, pointing to buyer-driven volume. Furthermore, IV has shot 25 percentage points higher, and volume has surpassed open interest, underscoring our suspicions of freshly minted bullish bets.
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