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Can Sirius XM Extend Its Climb?

Option bulls are scooping up 2-strike calls on SIRI

by 7/3/2012 10:30:57 AM
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The shares of Sirius XM Radio Inc. (NASDAQ:SIRI - 2.07) have muscled more than 10% higher since Monday morning, and are now on pace to end the week north of $2 for the first time since mid-May. Against this backdrop, the stock saw a notable jump in call activity yesterday, with traders scooping up 2-strike calls at a rapid-fire rate.

By the time the dust settled, SIRI had seen about 12,000 calls change hands -- almost twice its average daily call volume. Most active was the July 2 and September 2 calls, which saw around 5,200 and 1,500 contracts traded, respectively. The majority of the calls traded at the ask price, and call open interest swelled at both strikes overnight, pointing to buy-to-open activity. By buying the calls to open, the speculators are expecting SIRI to extend its climb above the $2 strike.

From a broader sentiment standpoint, traders have been buying to open SIRI calls at a faster-than-usual clip in recent sessions. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock sports a 10-day call/put volume ratio of 11.39, indicating that traders have bought to open more than 11 calls for every put during the past two weeks. Plus, this ratio registers in the 69th annual range, implying that options players have shown a healthier-than-usual appetite for bullish bets over bearish.

However, the short-term options crowd is still more put-heavy than average at the moment. The stock's Schaeffer's put/call open interest ratio (SOIR) of 0.64 stands higher than 89% of all other readings of the past year, indicating that near-term options players have rarely been more put-biased during the past year. In other words, there's still plenty of room on SIRI's bullish bandwagon.

As alluded to earlier, SIRI is on pace to end atop the $2 level for the first time in more than a month. In the same vein, after bouncing off support in the $1.80 level, the equity is also on track to topple its 10-week moving average for the first time since early April. However, the security is still staring up at its 20-week moving average, which is lingering in the $2.10 neighborhood.

Weekly Chart of SIRI since August 2010 With 10-Week and 20-Week Moving Averages

Nevertheless, if you expect SIRI to extend its upward momentum in the short term, now appears to be an opportune time to pick up calls on the stock. The equity's Schaeffer's Volatility Index (SVI) has plummeted in recent sessions, and now sits at 35% -- in the 7th annual percentile. Or, simply put, SIRI's short-term options are relatively inexpensive at the moment.

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