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Option Brief: Bullish bettors have honed in on Pandora Media Inc (NYSE:P) today, as roughly 15,000 calls have switched hands thus far -- almost double the equity's typical intraday volume. By comparison, fewer than 3,700 puts have been exchanged.
A closer look at today's action shows that a block of 3,940 calls crossed at the November 25 strike for an ask price of $1.63, suggesting the contracts were purchased. Meanwhile, a matching lot of calls traded simultaneously at the November 27 strike for a bid price of $0.63, implying they were sold. Since today's volume at the 25 strike has surpassed current open interest levels, it's possible that one trader constructed a bull call spread for a net debit of $1.00 per pair of options.
In other words, the speculator is counting on P to ascend past breakeven at $26 (purchased strike plus the net debit) by front-month options expiration, but not so far north that he would have been better off just buying "vanilla" calls. (Gains on this spread will max out should the stock reach the $27 level.) His maximum profit is capped at $1.00, or the difference between the strike prices, less the net debit. Conversely, the trader's potential risk is limited to the net debit paid for establishing the spread.
Pandora Media Inc (NYSE:P) has been knocking it out of the park on the technical front, as the stock has more than tripled in value during the past year to trade at $25.82. Additionally, the Internet radio darling has trounced the broader S&P 500 Index (SPX) by 31.7 percentage points over the last three months. Fundamentally speaking, the firm is tentatively due to report fiscal third-quarter earnings on Monday, Nov. 18 (after the aforementioned spread expires).