Pre-Earnings Pandora Media, Inc. (P) Bear Eyes a Repeat of History

Pandora Media Inc (P) will report quarterly earnings after tonight's close

Feb 5, 2015 at 1:54 PM
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Pandora Media Inc (NYSE:P) is slated to take its turn in the earnings confessional after tonight's close, and considering the equity has averaged a single-session post-earnings loss of 12.6% over the past four quarters, bears are piling on to bet on more of the same. In fact, puts are trading at 10 times what's typically seen at this point in the day, and are outpacing calls by a more than 3-to-1 margin.

Most active is P's weekly 2/6 16-strike call, due mostly to a massive block of 14,000 contracts that was bought to open for $448,000 (number of contracts * $0.32 premium paid * 100 shares per contract). This is the most the speculator stands to lose, should P settle the week atop the strike. Profit, meanwhile, will accumulate on a move south of the at-expiration breakeven price of $15.68 (strike less premium paid).

Today's accelerated put activity runs counter to the withstanding trend. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for example, the stock's 10-day call/put volume ratio of 5.01 ranks higher than 89% of all other readings taken in the past year. With 15% of the equity's float sold short, though, some of this could have been at the hands of short sellers hedging against any earnings-induced upside.

Regardless, near-term traders are willing to pay up for their pre-earnings bets. Not only does the stock's Schaeffer's Volatility Index (SVI) of 82% rank just 1 percentage point from a 52-week peak, but P's 30-day at-the-money implied volatility of 70.8% rests higher than 92% of similar readings taken in the past year. Summing it all up, the equity's short-term options are pricing in lofty volatility expectations at the moment.

On the charts, Pandora Media Inc (NYSE:P) has spent the past five months being guided lower by its 80-day moving average, resulting in a loss of roughly 30%. Should the stock take another post-earnings dive, a fresh round of bearish brokerage notes could amplify the equity's trajectory. Currently, 17 out of 22 analysts maintain a "buy" or better rating on the shares, versus three "holds" and two "strong sells." Plus, the average 12-month price target of $28.27 stands at a 55% premium to P's present perch at $18.26.


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