Wednesday, March 20, 2013

Pandora (P) - Stock Up 90% in Five Months as Vol Collapses 60% in Two Weeks to Annual Lows

P is trading $13.57, down 1.1% with IV30™ down 8.4%. The LIVEVOL® Pro Summary is below.


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Pandora Media, Inc. (Pandora), is an Internet radio in the United States. As of January 31, 2012, it had over 125 million registered users.

I found this stock using a real-time custom scan. This one hunts for depressed vols. The interesting here is that the stock is on a tear to the upside, yet the vol has totally collapsed.

Custom Scan Details
Stock Price GTE $5
IV30™ GTE 20
IV30™ Percentile LTE 10
Average Option Volume GTE 1,200

The goal with this scan is to identify short-term implied vol (IV30™) that is depressed to its own annual history (at most in the 10th percentile). I'm also looking for a reasonable amount of liquidity in the options (thus the minimum average option volume), and I want a minimum vol level so I don't pick up any boring ETF’s (or whatever). The stock price requirement helps me identify names that have enough strike prices to trade or spread.

The one-year P Charts Tab is included (below). The top portion is the stock price the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

Looking myopically to Nov of last year, we can see P was trading at an annual low of $7.08. Since that time, the stock is up more than 90%. That includes a run up then a collapse off of earnings on 12-5-2012, then a recovery and a gap up on earnings on 3-18-2013. I note also that both HV measures (HV20™ and HV180™) are considerably higher than the implied. In English, the option market is pricing less risk (volatility) than the stock has realized in both the short-term and long-term.

Since this is a vol note, let’s look at the one-year IV30™ chart in isolation, below.

Check out how high vol got into the last earnings cycle reaching an annual high in IV30™ (114.12%) and since then has completely collapsed to 43% as of this writing, or a 62% drop in the implied in less than two weeks. It’s this incredible vol decline that caught my eye while the stock continues to push higher.

Finally, let's look to the Options Tab (below).

Across the top we can see that Apr vol is priced to 42.57% and May vol is priced to 50.47%. Both are extremely low relative to the recent high made in early Mar. This is a truly fascinating phenomenon where the vol is not just depressed, but has literally collapsed as the stock is up 92% in less than six months. A very interesting one to watch.

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This is trade analysis, not a recommendation.

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