Options Bulls Blast Pandora Stock Ahead of Earnings

This week's earnings calendar will feature Pandora Media Inc (NYSE:P), with the streaming music service slated to unveil its quarterly results after the market closes tomorrow, Feb. 21. Options traders have been blasting P stock in recent sessions, and even though the shares have a dismal history of post-earnings price action, most of the speculation has been of the bullish variety.

Drilling down on P's largest increases in open interest over the past 10 sessions, the weekly 2/23 5.50-strike call tops the list, with 30,896 contracts added. Most of this activity occurred last Thursday, when a 19,289-contract block was bought to open, according to Trade-Alert.

If this is the case, the trader paid $636,537 (number of contracts * $0.33 premium paid * 100 shares per contract) for the bullish bet. This is also the most the speculator stands to lose, should P settle south of the strike at this Friday's close, while profit is theoretically unlimited on a move above breakeven at $5.83 (strike plus debit paid).

Elsewhere, the weekly 2/23 5- and 6-strike calls and 4.50-strike puts saw significant rises in open interest in the last two weeks. Per Trade-Alert, the activity at these weekly strikes is connected, with one trader last Friday selling to open puts in order to fund a long call spread -- betting on Pandora shares closing right at $6 at week's end.

Today, options activity is accelerated, with roughly 16,000 calls and 8,000 puts on the tape -- nearly three times what's typically seen at this point in the day. It looks like call traders could be purchasing new positions at the weekly 2/23 5.50 strike, while put traders are possibly buying to open the March 4.50 strike.

Looking back over the past eight quarters, Pandora stock has closed lower in its post-earnings session five times -- including a 24.6% plunge last November. On average, the shares have swung 7.1% the next day, regardless of direction, with the options market pricing in a much more volatilite 28.6% move for Thursday's trading.

At last check, P shares were trading up 4.8% at $5.41 -- boosted on reports the company will launch its pilot programmatic audio marketplace with Volkswagen -- on track for a sixth straight daily gain. But while the stock is pacing for back-to-back closes north of its 80-day moving average for the first time since last July, it's running out of steam near $5.40, site of its early November bear gap lows.