Put players targeted Pandora Media Inc
(NYSE:P) on Tuesday, despite the stock's impressive display on the charts. By the numbers, 8,142 puts changed hands throughout the session, or more than four times the average daily volume. Roughly two-thirds of this activity was centered at the August 20 put, where 88% of the 5,348 contracts traded did so on the ask side. Implied volatility jumped 3.6 percentage points, and open interest added 4,168 positions overnight, making it safe to assume that a fresh batch of bearish bets was initiated.
By purchasing the out-of-the-money puts, traders expect P to land below $20 by week's end. More specifically, the puts will become profitable with each step south of $19.76, which is the strike less the volume-weighted average price of $0.24, Pandora takes through Friday's close. The options market isn't giving the put much of a chance of moving into the money over the next few sessions, as delta
is docked at negative 0.19, or 19%. As a point of comparison, delta for this option sat at negative 0.42 at Monday's close.
Broadening the sentiment scope reveals that -- despite a rare uptick in call activity
earlier this month -- option traders have been scooping up puts with some rapidity of late. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), P's 50-day put/call volume ratio of 0.59 ranks in the 74th percentile of its annual range. In other words, puts have been bought to open over calls at a faster-than-usual clip during the past 10 weeks.
In the front-month series, this trend has translated into peak put open interest at the 20 strike, which could soon serve as options-related support
, as the nearly 5,200 contracts that reside here unwind ahead of Friday's close.
On the charts, Pandora has put in a strong performance in 2013, with the stock up nearly 128%. As touched upon, this upward trajectory was reinforced yesterday, when the equity tagged a two-year high of $21. The positive price action is continuing in today's session, with Pandora up 0.6% at last check to trade at $20.98 -- a chip shot away from marking another new technical milestone.
This article by Karee Venema was originally published on Schaeffer's Investment Research.
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