Pandora (P, $7.83, down $1.62) is tumbling despite beating Wall Street’s estimates after the bell yesterday. The company reported a profit of 5 cents a share on revenue of $120 million that topped forecasts for a penny a share on sales of $117 million. The problem was with their current quarter as they are blaming Super Storm Sandy and other factors for lowering estimates.
The company expects a loss of 6 to 9 cents a share on revenue of $120-$123 million while the suit-and-ties were looking for a profit of 2 a share on $130 million in sales. We have traded Pandora a few times this year with good success but we missed a chance to play the downside.
We highlighted the stock in our Weekly Wrap Sunday night as a possible earnings trade and although we stood on the sidelines, the put options are zooming on the stock’s 17% plunge. The Pandora December 9 puts (P121222P00009000, $1.25, up $0.60) are up a whopping 90% while the January 10 puts (P130119P00009000, $1.50, up $0.55) are soaring nearly 60%.
Pandora continues to face stiff competition but their app is popular. The problem is they have to pay more for each song played than traditional outlets and that is weighing on margins.
Shares closed yesterday’s session just below their 100-day moving average (MA) after clearing the 50-day MA. This tight technical picture is clearly visible on the chart and we missed a golden opportunity to make a sweet triple-day gain in less than 24 hours.
We don’t like to chase breakouts or breakdowns but the current price action is pointing towards a possible dip to $5. The 52-week low is at $7.08. We will wait for shares to settle down and when the smoke clears we may look at other ways to play a further downside move, or a bounce back to resistance.
Elsewhere, Apple (AAPL, $554.84, down $21.01) is folding like a cheap lawn chair as shares are down another 4%. We talked about paper-thin support at $575 and that if it didn’t hold, shares could test $540. Today’s low has been $545.56 so they could be reaching a bottom.
It has been awhile since we have traded Apple options due to the rich premiums (and why they should do a 10-to-1 stock-split) but the December 600 calls (AAPL121222C00600000, $2.85, down $3.30) look tempting. They are down over 50% and have traded to a low of $2.42. If Apple announces a special dividend, and we believe they will, shares could easily rebound to push $600 and these options will do well.
One other side note, shares of Bank of America (BAC, $10.24, up $0.34) have hit double-digits and we have talked about the importance of this. The stock is a current recommendation for our Weekly Wrap and we have made solid gains all year long by trading the range. It’s too early to call today’s pop a breakout but we like the move.
As we head to press, the Dow is up 115 points to 13,066 while the S&P is higher by 6 points to 1,412 and back over 1,410. The Nasdaq is lower by 9 points to 2,985 and we talked about the 2,975-2,950 area this morning. Today’s low has been 2,958. A close above 2,975 (3,000 would be better) is crucial or the bulls face further risk down to 2,900.
We have some exciting news coming to you over the next 2 days that will cover our once a year special that includes a sweet discount on our Daily and Weekly Wrap newsletters as well as our option trading course, How to Trade Options on Momentum Stocks. We will also be offering you a chance to win a NEW iPad if you can guess where the Dow will be on the final day of trading on the December 31, 2012 close. More details to come so stay tuned in.
Subscribers, check the Members Area for the updates and we will be back in the morning with a full report.