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The news that Brian McAndrews has been appointed Pandora Media Inc's (NYSE:P) next CEO has investors reacting on a couple of different fronts. For one, the stock earlier soared to a two-year high of $23.75, and is currently up nearly 9% from yesterday's close at $23.27. Meanwhile, in the options pits, overall volume more than triples its expected intraday average, as roughly 35,000 contracts have traded.
The most popular strike in today's session is Pandora's October 24 call, where 5,464 contracts have crossed the tape, mostly in a series of medium-sized blocks. The calls traded predominantly on the ask side, suggesting they were purchased. Additionally, volume outstrips open interest at the strike, and implied volatility is up 2.7 percentage points, together hinting at the initiation of new bullish positions.
The volume-weighted average price (VWAP) for the P calls was $1.31. Therefore, the breakeven point for the trade is $25.31 -- or the strike price plus the VWAP -- which must be reached before the closing bell on Oct. 18, when the back-month options expire. Should the shares remain south of the strike throughout their lifetime, the most the option bulls can lose is their initial cash outlay. Currently, delta on the calls is 0.47, or 47%, meaning the chances of the option landing in the money by expiration Friday are about as good as the flip of a coin.
Even if the speculators surrender the premium they paid for their long positions, they can rest easy knowing the sum was relatively modest. Schaeffer's Volatility Index (SVI) for Pandora Media Inc (NYSE:P) stands at 49%, which is lower than 91% of like readings taken in the past year. In other words, short-term options are inexpensive right now, compared to what they've cost during the past 12 months. However, it should be noted that the stock's 30-day, at-the-money implied volatility has gained 2.7 percentage points, or 5.4%, so far in the session, so near-term options are getting more expensive.
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