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Pandora Media Inc (P) Option Bulls Jump In on the Dip

Is sentiment shifting among P's options crowd?

by 2/20/2013 2:33 PM
Stocks quoted in this article:

After tagging a new 11-month high of $13.50 on Tuesday, the shares of Pandora Media Inc (NYSE:P - 12.49) are taking a breather this afternoon. What's more, some options traders are expecting the online radio concern to resume its longer-term uptrend relatively soon.

At last check, P has seen close to 10,000 calls change hands -- more than three times its average intraday call volume, and more than five times the number of P puts exchanged thus far. More than half the action has transpired at the March 12 call, which has seen 6,300 contracts cross the tape. The majority of the calls have traded on the ask side, and implied volatility is trending higher, hinting at buy-to-open activity.

By purchasing the calls at a volume-weighted average price (VWAP) of $1.50, the traders are hoping P muscles atop the $13.50 level (strike plus VWAP) -- in territory not charted since March 2012 -- within the next month. However, should P continue today's swoon, the maximum risk is capped at the initial premium paid for the calls.

Despite outperforming the broader S&P 500 Index (SPX) by nearly 54 percentage points during the past three months, today's affinity for bullish bets marks a change of pace for P. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 1.07 stands just 8 percentage points shy of a 52-week peak. Or, in simpler terms, option buyers have picked up P puts over calls at a near annual-high clip during the past couple of weeks.

Echoing that skepticism, short interest accounts for 31.2% of P's total available float, representing nearly nine sessions' worth of pent-up buying demand, at the stock's average pace of trading. Meanwhile, seven out of 17 analysts maintain "hold" or worse opinions of P.

On the charts, the shares of P have added more than 42% since the start of 2013, ushered higher atop their 10-day and 20-day moving averages. As such, the equity's Relative Strength Index (RSI) stands at a lofty 78 -- in overbought territory, implying that today's pullback could've been in the short-term cards. Nevertheless, the former of those trendlines has ascended into the $12.25 neighborhood, and could contain P's retreat.

Should P resume its longer-term ascent, an unwinding of pessimism in the options pits, a short-squeeze situation, or a wave of upbeat analyst attention could add contrarian fuel to the fire.

Daily Chart of P since December 2012 With 10-Day and 20-Day Moving Averages


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