Apple Attack's Pandora: Is This The Start Of The End?
Ophir Gottlieb | Sep 09, 2012 05:28AM ET
Pandora Media, Inc. (P), is an Internet radio service in the United States. As of January 31, 2012, it had over 125 million registered users.
This is a vol and stock note based on some very frightening news for P shareholders. A rather large company named Apple (AAPL) (actually the largest in the world) may have just ended their business. Here's the news:
NEW YORK (AP) -- Shares of Pandora Media Inc. tumbled Friday afternoon after a report by The Wall Street Journal that Apple Inc. is in talks to license music for an online radio service similar to Pandora's.
THE SPARK: The Journal's Friday edition said Apple is pursuing such a service because it is trying to expand its dominance in online music. It cited unidentified people familiar with the matter. Apple spokesman Tom Neumayr declined to comment on rumors and speculation.
THE BIG PICTURE: Pandora has several rivals already, including Spotify. But Apple's control over the iPhone and iPad could let it emphasize its own service.
Pandora pays royalties at statutory rates much like a regular radio station does. Apple is discussing licensing deals with record companies because it wants to sidestep some of the restrictions that apply to online radio. For instance, Pandora prevents users from listening to the same song twice in a row. -- Source: AP via Yahoo! Finance; Pandora down on WSJ's Apple online radio report .
That's ummm... scary... And I say that as my Pandora station plays in the background.
Let's start with the Charts Tab (six months), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).
On the stock side we can see that just a few weeks ago the stock was riding high off of the earnings release (8-29-2012 AMC). The price popped 14.3% ($10.08 to $11.52). Since then the stock continued its rise, closing at $12.57 yesterday -- which was more than a six-month high. But then today happened...
Looking to the vol side, we can see how elevated the implied got into that last earnings cycle. The risk was at a six month high, then vol collapsed on the good earnings report. The news today is very much a 180 in terms of Pandora's outlook. One thing that has me scratching my head (not that it takes much), is the vol move -- while it's an impressive spike, I kinda felt like it could go higher. Of course, timing is everything. As more details hit the news wires, P vol could continue to rise and not necessarily in small moves.
Get The News You Want
Let's turn to the Skew Tab.
While the skew across the months has maintained "normal" shapes, I do note that the front is well elevated to the back. The option market reflects substantially elevated risk to the downside in the near-term.
Finally, let's turn to the Options Tab, for completeness.
Across the top we can see the monthly vols are priced to 74.57%, 70.57% and 70.59%, respectively for Sep, Oct and Dec. I do note the vol diff between the Sep and Oct OTM puts. As one example, the Sep/Oct 9 put spread shows an 11+ vol point diff. My best guess is that P stock is steady until more news comes out. Whether the news is a rebuttal or a cataclysm, I dunno...
DISCLAIMER: This is trade analysis, not a recommendation.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.