Call Buyers Target Pandora Media, Inc. (P) Amid Buyout Buzz

Pandora Media Inc (NYSE:P) is flying high on unconfirmed takeover rumors, up 6% to trade at $16.25. Also, calls are seeing extreme demand, crossing the tape at nine times the expected intraday rate, while the stock's 30-day at-the-money implied volatility is up 5.3% at 49.9%, suggesting short-term strikes are popular.

P's most active option is the in-the-money March 15 call. Traders are buying to open these positions in the hopes of additional upside through next Friday's closing bell, when front-month options expire. Based on the call's volume-weighted average price (VWAP) of $0.63, at-expiration breakeven for the trade is $15.63 (strike plus VWAP) -- which the underlying has already surpassed this morning.

Call buying has been all the rage in recent weeks in P's options pits. The equity's 10-day call/put volume ratio across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is 11.25, indicating more than 11 calls have been bought to open for every put. What's more, this ratio outstrips 95% of all comparable readings from the previous year.

However, it's possible some of these long calls were initiated by short sellers seeking an upside hedge. Over 15% of P's float is sold short, representing a week's worth of trading, at typical daily volumes.

Adding further credence to this protective call theory are Pandora Media Inc's (NYSE:P) long-term technical struggles. While today's gains are impressive, the fact remains the shares have surrendered more than half their value year-over-year, and touched a fresh annual low of $14.50 earlier this week.