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Pandora Media Inc (NYSE:P) is up 5.1% to trade at $26.83 today, after the internet radio service announced an increase in audience metrics for September. What's more, options activity has ramped up, as 23,000 puts and 19,000 calls have crossed the tape thus far -- representing a 55% mark-up to the intraday norm.
Garnering noteworthy attention is the November 25 put, where 2,840 contracts have changed hands at a volume-weighted average price (VWAP) of $1.67. Roughly three-fourths of the contracts went off at the ask price, implied volatility has ticked 3.5 percentage points higher, and volume exceeds current open interest levels, collectively pointing to the initiation of long puts.
In order for today's put buyers to profit, Pandora Media -- which has nearly tripled in value so far this year -- has to reverse course, and fall back into territory last explored on Sept. 17. Specifically, the stock has to finish south of the breakeven rail of $23.33 (strike price less the VWAP) by the close on Nov. 15, when back-month options expire.
Given P's ascent to new highs -- the stock tagged a new record peak of $27.50 on Sept. 19 -- and its impressive audience metric results for September, it is likely that some of today's out-of-the-money put activity was the result of shareholders hedging their portfolios against a potential pullback in the near term.
Of note, Pandora Media Inc (NYSE:P) is tentatively slated to report third-quarter earnings on Nov. 18 -- the session after November options expiration -- and analysts, on average, are calling for a per-share profit of 6 cents, up 1 cent from last year's results. Therefore, it is also possible that the put buyers see a pre-earnings dip on the horizon.
Regardless of motive, today's traders stand to lose no more than their initial premium paid per contract, should the stock remain north of the 25 strike through the expiration date.
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