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Traders Bet On Pandora Media Inc (P) To Take Back $15

P's May 15 call was targeted by speculators on Wednesday

by 4/25/2013 9:13 AM
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Pandora Media Inc (NYSE:P) has had an impressive run on the charts in 2013, with the stock tacking on 52.4%. This upward momentum isn't over, according to Wednesday's options traders, who eyed a move above the $15 mark over the next several weeks. Nearly 1,500 May 15 calls crossed the tape yesterday for a volume-weighted average price (VWAP) of $0.39. Almost all of these went off at the ask price, and open interest added 1,215 positions overnight, making it safe to assume that new bullish positions were created.

In order for these out-of-the-money calls to be profitable, P must rise above the $15.39 mark (strike price plus the VWAP) by the close on Friday, May 17 -- when front-month options expire. This breakeven level represents expected upside of 10% from yesterday's finish at $13.99. At Wednesday's close, delta for the call was docked at 0.30, or 30%, suggesting a roughly 1-in-3 chance the options will be in the money by expiration. Should Pandora Media fail to muscle above the strike price over the next few weeks, the most these call buyers have on the line is the initial premium paid.

Expanding the sentiment scope reveals that calls have been the preferred options on Pandora Media Inc in recent months. Throughout the past 50 sessions, traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 56,852 calls, compared to 18,118 puts. The resultant call/put volume ratio of 3.14 ranks higher than 82% of similar readings taken in the past year, pointing to a healthier-than-usual appetite for bullish bets over bearish of late.

Echoing this trend is the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.35, which ranks in the 14th percentile of its annual range. In other words, short-term speculators are more call-heavy than usual toward P.

As touched upon, Pandora Media Inc (NYSE:P) is sporting a formidable year-to-date return, thanks in no small part to a solid quarterly showing in early March. Helping support this strong price action has been the stock's 50-day moving average, which has been giving Pandora a lift since mid-December.


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