Option Bull Puts $65K on Pandora Media Inc (P)

Pandora Media Inc (P) call options are sizzling amid the stock's technical breakout

Nov 4, 2016 at 2:04 PM
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Amid a heavy-volume session, Pandora Media Inc (NYSE:P) is popping. At last check, the stock has jumped 4.4% to trade at $10.90, possibly sparked by a big bullish options trade that transpired around 10 a.m. ET.

Taking a quick step back, P calls are crossing the tape at more than double the expected intraday rate. What's more, call options are outstripping puts by a roughly 12-to-1 margin, with 16,000 contracts to fewer than 1,300. In fact, calls account for nine of the 10 most active strikes so far.

In the lead by a mile is the weekly 11/11 11.50-strike call. According to Trade-Alert, one speculator bought to open a sweep of 5,000 contracts at this strike for a total of $65,000 ($0.13 premium paid * number of contracts * 100 shares per contract). Her goal is for Pandora shares to rally past $11.50 by next Friday's close, when the weekly series expires. However, if the option fails to make it in the money, the most the trader risks losing is the initial premium paid.

Call buying has been all the rage lately at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Specifically, within the last four weeks, traders have bought to open 2.72 calls for each put.

Now is a great time to place short-term options bets on Pandora, too, whether bullish or bearish. The stock's Schaeffer's Volatility Index (SVI) of 59% ranks below 90% of all readings from the prior year. In other words, front-month P strikes are pricing in lower volatility expectations than usual.

From a technical perspective, downside wagers may be the way to go. Since hitting a near-term peak of $14.94 in early October, P shares have surrendered over one-quarter of their value. Not to mention, the streaming media stock is about 19% lower on a year-to-date basis.

Thus, it comes as little surprise to observe sky-high short interest levels on Pandora Media Inc (NYSE:P). By the numbers, 43 million shares -- or 22.3% of the stock's total float -- is sold short. Based on this accumulation of bearish bets, it's possible that recent call buyers -- especially those targeting out-of-the-money strikes -- could be short sellers seeking an upside hedge.

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