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Pandora Media Inc (NYSE:P) bucked the broad-market trend higher on Friday, dropping to $24.53, and was last seen 1.2% lower at $24.23. In fact, the stock has surrendered 8.9% in 2014, yet option players remain optimistic.
On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the streaming music provider sports a 10-day call/put volume ratio of 2.61 -- in the 89th percentile of its annual range. In other words, options buyers have picked up P calls over puts at a faster-than-usual clip during the past two weeks.
On Friday, however, one speculator took a less "vanilla" approach to place neutral-to-bullish bets on P. Daily put volume was accelerated, compared to the average rate, with the June 24 put most active. More than 5,400 contracts traded at the strike, including a block of 3,352 contracts that were sold to open for $1.05 apiece -- data confirmed by the ISE.
By writing the puts to open, the seller expects P to remain north of $24 through the close on Friday, June 20, when front-month options expire. In this best-case scenario, the puts will remain out of the money, and the trader can pocket the initial net credit -- which amounts to $351,960 (number of contracts x 100 shares per contract x premium received). Should P breach the strike within the option's lifetime, the seller will risk assignment and losses could add up.
As alluded to earlier, P has struggled on the charts of late, underperforming the S&P 500 Index (SPX) by nearly 36 percentage points during the past three months. Nevertheless, analysts -- like option buyers -- remain hopeful, with 17 out of 24 doling out "buy" or better opinions. Likewise, the consensus 12-month price target of $34.44 represents expected upside of more than 42% from P's current price.
Off the charts, Pandora Media Inc (NYSE:P) -- which will host its annual shareholder meeting on Wednesday -- is facing increasing competition from the likes of new Beats Electronics owner Apple Inc. (NASDAQ:AAPL), and Amazon.com, Inc. (NASDAQ:AMZN), which is reportedly set to debut its own streaming music service within the next couple of months. Should P struggle technically or fundamentally, a mass exodus of option bulls or a flood of negative analyst attention could exacerbate selling pressure on the underperformer.