Options Trading News

February 1, 2013  Fri 4:14 AM CT

Pandora Media is up nearly 50 percent in the last two months, and one trader is reloading for further gains.

A trader sold 5,000 March 12 calls for $1.05 and bought the same number of March 14 calls mostly for $0.50, according to optionMONSTER's Heat Seeker tracking system. The March 12s were below previous open interest while the March 14s were above it.

This indicates that the investor is closing an initial long-call position and opening a new one at a higher strike price as the stock continues to climb. The trader probably made a profit on the earlier contracts and is now looking for Pandora's shares to rise above $14.

The long calls lock in the purchase price of the stock no matter how high it may rise, so they can provide significant leverage in a rally. But these options will be worthless if the stock is below the $14 strike price by expiration in mid-March. (See our Education section)

P rose 1.22 percent yesterday to close at $11.60. The online-radio service gapped below $8 in early December after issuing weak guidance, but shares have been climbing sharply since then and are now back near the high end of their range for much of 2012.

Yesterday's call roll pushed total option volume in the name to 13,883 contracts, nearly triple its daily average of 4,902 in the last month. Only 357 puts traded in the entire session, a reflection of the bullish sentiment.
Share this article with your friends

Invest Like a Monster - San Antonio: October 9-10

Premium Services

Archived Webinar

Education & Strategy

Options Academy: More on the Covered Call Strategy

Last week, we talked about the Covered Call and the misconceptions that surround it. We spoke about how an investor must realize that the Covered Call is actually a premium collection strategy and not so much a directional one. If an investor can grasp this idea, the investor stands to do a heck of a lot better in the strategy than they currently do.

View more education articles »