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With Pandora Media Inc (NYSE:P - 8.14) up roughly 2.4% today, option players are placing their bets on the stock to continue this positive price action through January expiration. Nearly all of today's call volume is centered at the January 2013 9 strike, which has seen roughly 6,350 contracts trade. Of these, 98% have crossed at the ask price, and implied volatility has moved six percentage points higher, hinting at buy-to-open activity.
By purchasing these out-of-the-money calls, traders will begin to profit with each step north of breakeven at $9.27 (the strike price plus the volume-weighted average price [VWAP] of $0.27) P takes through the close on Jan. 18. This represents a roughly 14% premium to current levels.
Today's rush toward calls isn't unusual for option traders, though, as evidenced by data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Over the course of the past 20 sessions, traders have bought to open 560 calls for every 100 puts on P.
Technically, P's struggles have been well-documented. In addition to lagging the broader S&P 500 Index (SPX) by 28 percentage points over the past three months, the stock has surrendered around 20% in 2012. Plus, the equity shed more than 17% on Dec. 5, after providing a dismal forecast for its current fiscal year. P has been able to pare a portion of these losses over the past week, and is now attempting to break out above resistance from its 20-day moving average.
The stock was last seen hovering just north of the $8 mark. Should P fail to topple the aforementioned breakeven level, the most today's call buyers can lose is the initial premium paid. With implied volatility at the January 2013 9-strike call currently deflated relative to its 40-day historical (realized) volatility (56% vs. 78.7%), the speculators can rest easy knowing the premium they paid is relatively cheap.