Option Bulls Keep the Faith in Pandora Media Inc (P)

Despite technical struggles, Pandora Media Inc option traders remain hopeful

by

Published on Dec 9, 2014 at 8:16 AM
Updated on Apr 20, 2015 at 5:32 PM

Pandora Media Inc (NYSE:P) slid another 2% yesterday to close at $17.89, bringing its year-to-date deficit close to 33%. Nevertheless, traders have been wagering on upside in recent weeks, per the stock's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 5.12, which sits just 4 percentage points from an annual high.

It was more of the same on Monday, as calls crossed at roughly 1.2 times the normal daily rate, and easily outstripped puts. What's more, P's 30-day at-the-money implied volatility rose 6.9% to 52%, pointing to elevated demand for short-term strikes.

Digging deeper, the equity's weekly 12/12 18.50-strike call was far and away the most active option. More than 5,000 contracts were exchanged here -- the majority at the ask price, hinting at buyer-driven activity. What's more, open interest added approximately 1,100 positions overnight, making it safe to assume fresh bullish positions were initiated. Data from the ISE echoes this theory.

In short, these call buyers expect Pandora Media Inc (NYSE:P) to topple $18.50 by Friday's closing bell, when the weekly series expires. However, given the stock's retreat yesterday, delta on the call is now just 0.31 -- compared to 0.43 at last Friday's close -- meaning the market is giving the option less than a 1-in-3 chance of being in the money at week's end.


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