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Amid tagging a new multi-year high on Friday, Sirius XM Radio Inc (NASDAQ:SIRI) was pummeled by bearish traders in the options pits. Roughly 20,000 puts -- almost 10 times the norm -- crossed the tape during the course of the session. A large portion of the action can be traced to a single speculator, who is counting on the stock to backpedal over the next several months.
To be more specific, the March 3.50 put saw 16,125 contracts change hands -- most of which traded in one large block at the ask price of $0.19 each. Meanwhile, implied volatility ticked higher at this strike on Friday, and open interest soared over the weekend, signaling the initiation of new positions. By purchasing the puts to open, the speculator is betting on SIRI to fall south of breakeven at $3.31 (strike price less the premium paid) by March expiration. This represents a decline of about 14.7% to the stock's current price of $3.88, as well as a level not breached on a daily closing basis since late June.
At last check, the delta for this option stood at negative 0.29, meaning it has a roughly 1-in-3 chance of moving in the money by expiration. However, even if the Internet radio concern maintains its perch above the strike price throughout the put's lifetime, the most the aforementioned buyers stand to lose is the initial premium paid.
On the technical front, Sirius XM Radio Inc (NASDAQ:SIRI) has gained more than 34% year-to-date, and nearly 53% year-over-year. Meanwhile, the stock continues to trade above its 32-week moving average, which contained SIRI's June pullback. Given this backdrop, Friday's option bears may have been shareholders picking up some "insurance" by purchasing protective puts.
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