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Monday, February 6, 2023


Put Player Near-Term Bullish On Pandora Post Earnings

Today’s tickers: P, IYR, TIF & BAC

P – Pandora Media Inc. – Demand for options covering Pandora, the online music company that went public in June, jumped after the company reported better-than-expected earnings of $0.02 a share for the second quarter. Pandora’s first earnings report since become a publicly traded company sent shares up as much as 11.5% to an intraday high of $13.90 as its top- and bottom-line results topped expectations. Despite the spike in the price of the underlying today, shares continue to trade at a substantial discount to its initial public offering price of $16.00. The positive earnings report spurred bulls to the options market, with notable volume building in September contract puts. It looks like one trader expecting Pandora’s shares to resist above $12.00 through expiration next month sold roughly 3,000 put options outright at the September $12 strike at a premium of $0.70 per contract. The put seller walks away with the full amount of premium at expiration as long as shares in Pandora exceed $12.00 and the options expire worthless. The short stance in Pandora puts suggests the trader may wind up having around 300,000 shares put to him at an effective price of $11.30 each at September expiration if the stock slips beneath $12.00 in the next three weeks. Options implied volatility on Pandora Media Inc. stand 29.2% lower post earnings at 82.54% this afternoon.

IYR – iShares Dow Jones US Real Estate Index Fund – A sizable put spread on the iShares Dow Jones U.S. Real Estate Index Fund yields maximum benefit to one bearish strategist if the price of the underlying drops substantially by the end of the year. Shares in the IYR, an exchange-traded fund that tracks the Dow Jones U.S. Real Estate Index, turned positive in the aftermath of Bernanke’s much anticipated speech in Jackson Hole, Wyoming, to trade 0.60% higher on the session at $54.16 as of 11:15 am ET. The fund’s largest holdings are in REITs Simon Property Group (SPG) and Equity Residential (EQR), self-storage services provider Public Storage (PSA), and mortgage REIT Annaly Capital Management (NLY). Shares in the top four holdings are all positive this morning, with Annaly Capital Management gaining the most, up 2.2% at $17.68. The bearish spread initiated in the December contract on the IYR suggests, perhaps, that the fund’s shares may surrender gains during the next four months. The put spread may be the work of an investor hedging exposure to the U.S. Real Estate sector, the ETF itself, or could be an outright bearish play designed to achieve optimal results should the fund nosedive.

It looks like the trader purchased 5,000 puts at the December $49 strike for an average premium of $3.16 apiece, and sold the same number of puts at the lower December $36 strike at an average premium of $0.825 each. Net premium paid to initiate the spread amounts to $2.335 per contract, thus positioning the trader to profit should shares in the IYR drop 13.8% to breach the effective breakeven price of $46.665 by December expiration day. The investor could potentially walk away with maximum profits of $10.665 per contract if the fund’s shares plunge 33.5% to trade below $36.00 at expiration. Shares in the IYR last traded below $36.00 back in August 2009, five months past the fund’s lowest point of the financial crisis. Options implied volatility on the ETF slipped 6.2% to 38.09% by 11:30 am in New York.

TIF – Tiffany & Co., Inc. – The luxury jewelry retailer’s blowout earnings report released ahead of the opening bell this morning sparked a return to Tiffany & Co., and sent shares in the name up as much as 8.2% to $68.27 in the first half of the trading day. The broad market pull back in the past few weeks did not spare TIF, which saw its shares drop a staggering 32.5% in the four weeks between July 20 and August 19. Concerns regarding the slowing economy and possibility of a double dip recession, as well as S&P’s downgrade of U.S. debt, drove investors out of luxury names on fears such headwinds may damage consumer confidence and willingness to spend. But, the luxury retailer’s significant second-quarter earnings surprise and revision higher for full-year profits put the shine back into the stock for some investors today. Options covering Tiffany & Co. are buzzing with activity post-earnings, as traders take profits, ditch downside protection, and position for further bullish movement in the shares, among numerous other strategies. Traders who purchased call options ahead of the earnings announcement are enjoying sizable profits today, at least on paper. It looks like some investors expecting shares to rally after earnings purchased around 1,000 calls at the September $60 strike for an average premium of $3.70 each this week. These deep in-the-money calls today tout an asking price of $8.60 a-pop. Meanwhile, light put selling at the September $62.5 strike may be the work of investors taking down bearish or protective stances on the stock in the aftermath of earnings. Alternatively, put selling could represent a vote of confidence by traders expecting the stock to exceed $62.50 through September expiration. Options implied volatility on the world’s second-largest luxury jewelry retailer is down 22.6% to stand at 45.86% as of 1:10 pm on the East Coast.

BAC – Bank of America Corp. – The largest single trade in options covering Bank of America as of 11:50 am ET hit the tape within 15 minutes of the opening bell this morning. Shares in BofA are off their lows of the session, but remain in the red, down 0.65% at $7.60 one day after Warren Buffett’s Berkshire Hathaway purchased $5 billion of cumulative perpetual preferred stock in the bank. It looks like one investor purchased 40,000 deep in-the-money puts outright at the February $11 strike for a premium of $3.85 each. Why the strategist selected such deep in-the-money contracts is anyone’s guess, but the sheer size and expense of the transaction as well as its execution ahead of Bernanke’s comments from Jackson Hole are noteworthy. Open interest in the Feb. 2012 strike put stands at 49,154 contracts and exceeds volume in the put play, however open interest patterns do not suggest the trade is a closing one.

Andrew Wilkinson

Senior Market Analyst


Caitlin Duffy

Equity Options Analyst

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