Option Bulls Pounce On Soaring Pandora Media Inc (P)

A copyright ruling has attracted Pandora Media Inc (P) call buyers

by Andrea Kramer

Published on Sep 21, 2015 at 11:23 AM
Updated on Jun 24, 2020 at 10:16 AM

The shares of Pandora Media Inc (NYSE:P) were temporarily halted -- twice -- for volatility, and the stock was last seen 6.5% higher at $20.98, after peaking at an intraday (and year-to-date) high of $22.60. After rampant speculation on StockTwits -- with some hoping for a bid from Apple Inc. (NASDAQ:AAPL) -- Pandora just confirmed a copyright royalty win. Against this backdrop, option bulls are bombarding P in early trading. 

P options are flying off the shelves at four times the average intraday pace, though call volume has more than doubled put volume thus far. Most active is the weekly 10/9 19.50-strike call, where implied volatility has surged 17.1 percentage points. It looks like buyers are picking up the short-term calls to gamble on more upside for P in the next few weeks.

Specifically, buyers who purchased the call at a volume-weighted average price (VWAP) of $0.92 will make money the higher P soars north of $20.42 (strike plus VWAP) by the close on Friday, Oct. 9, when the weekly options expire. Risk is capped at the initial premium paid for the contracts, should Pandora backpedal beneath the strike within the options' lifetime.

Today's appetite for bullish bets merely echoes the growing trend, though. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day call/put volume ratio sits at a lofty 9.46 -- above 87% of all other readings from the past year. In simpler terms, option buyers have picked up P calls over puts at a much faster-than-usual clip during the past two weeks.

Prior to today, P's short-term contracts could be had at a relative discount. The stock's Schaeffer's Volatility Index (SVI) sat at 51% -- above just 23% of all other readings from the past year. Today, though, P's 30-day at-the-money implied volatility has surged to 73.8%, just a percentage point from an annual high. For comparison, Pandora Media Inc's 30-day historical volatility sits at 34.8%, suggesting the equity's short-term options are pricing in a bigger-than-usual move.

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