Pandora Media Inc (P) Puts Pop as Takeover Hopes Get Dashed

A rare batch of put players is targeting Pandora Media Inc (P) as the stock sinks

Jan 6, 2017 at 12:37 PM
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The past year has been quite a ride for Pandora Media Inc (NYSE:P), which is up about 13% despite several ups and downs. Today, the shares are off 4.9% at $12.37, after Sirius XM Holdings Inc. (NASDAQ:SIRI) CFO David Frear said an anticipated takeover of the streaming music provider is "not very likely." Meanwhile, this price action has inspired an unusual rush on puts in P's options pits.

The stock's put options are crossing the tape at roughly four times the expected intraday pace, with 15,000 contracts changing hands so far -- compared to just over 10,000 call options. In fact, put volume is currently on track to finish the day near a 52-week high. Leading the way so far are the June 10 and March 12 puts, with buy-to-open action looking particularly likely at the latter.

This put-heavy action marks a significant change of pace for P, where calls have been the option of choice by a wide margin in recent months. In fact, the equity's 10-week call/put volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits at a top-heavy 4.96. Moreover, this ratio ranks just 8 percentage points from an annual peak.

That doesn't mean P has been surrounded by optimism, however. Short interest on the stock is currently docked at a record high of 61.4 million shares, representing nearly 30% of P's available float. At the security's typical pace of trading, it would take more than a week to cover all these bearish bets. What's more, this high level of short interest suggests much of the recent call buying may have come at the hands of short sellers using options to hedge their positions.

In any case, it appears to be a prime time to pick up P's short-term options. With a Schaeffer's Volatility Index (SVI) of 52% -- in the low 6th percentile of its annual range -- premium on the equity's near-term options should be well-priced, from a volatility standpoint.

Returning to the charts, the same M&A chatter being shut down today is what sent P rallying hard in early December. Since then, the shares have been poised above the 50-day moving average -- a trendline that ushered Pandora Media Inc (NYSE:P) higher from May through October of last year. But should today's losses continue, the stock is at risk of giving up that foothold.

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