Earnings Trade Ideas for Pandora

• Posted by Greg Harmon
• on February 11th, 2016

Pandora, $P, has been nothing short of a disaster since the 6 sigma move lower following their last earnings report in October. The stock consolidated for 2 months before making a weak charge higher that failed. The fall from that high at 16 has resulted in a 50% loss of value since mid December, and now a 80% drop from the all time high.

From the chart below you can see the RSI is in the bearish zone and flirting with the oversold line while the MACD is flat but negative as the price trend falls. The Bollinger Bands® are opening lower and the SMA’s are now all trending smoothly lower. Ugly. Sounds familiar huh?

There is support at 8 and then 7.15 from 2013. there is no prior price history below that. Resistance above stands at 8.45 and 10 before 11.50 and 12 then 13.75. The last 6 earnings reports have seen the stock move by about 16.32% on average the next day, or about $1.35 at current price levels. This creates an expected range of 6.80 to 9.60. Short interest is high at 20.1%.

The February 12 Expiry Straddles suggest a similar $1.38 move by expiry with implied Volatility at 350% above the March at 98%. Open interest is very large on the call side from 9 to 10.5 where it is biggest. On the put side biggest open interest stands at the 9 strike. There is high activity on the 6.5 Puts today, mainly on the bid side.

Trade Idea 1: Buy the February 12 Expiry 8/7.5-7 1×2 Put Spread for $0.04.

Trade Idea 2: Buy the February 12 Expiry 8/7/6 1×2 Put Butterfly for $0.25.

Trade Idea 3: Buy the February 12 Expiry 9/10 1×2 Call Spread for 13 cents.

Trade Idea 4: Buy the February 12 Expiry 8.5/10 1×2 Call Spread (24 cents) and sell the February 12 Expiry 7 Put for 4 cents.

Trade Idea 5: Buy the February 12 Expiry 8.5/9 Call Spread and sell the February 12 Expiry 7 Put for free.

#1, and #2 look for a move lower but not to exceed about 7, following options projections. #1 is profitable from anywhere from 7.96 to 6.54, while #2 makes money between 7.75 and 6.25. #3 gives the upside with leverage and is profitable between 9.13 and 10.87. #4 looks for a move higher with leverage and a possible entry at 7. It is profitable on a close between 8.54 and 11.46 Friday. #5 is profitable anywhere above 8.50 at expiry with risk of being put the stock at 7.

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