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Option Bulls Swarm Sirius XM Radio Inc (SIRI) Ahead of Earnings

Weekly call volume heats up on SIRI

by 10/16/2013 1:45 PM
Stocks quoted in this article:

Sirius XM Radio Inc (NASDAQ:SIRI) is following the broader market's path higher today, adding 1.3% to trade at $3.95. Meanwhile, bullish betting has accelerated slightly on the satellite radio concern, as approximately 7,400 calls have been exchanged thus far -- about 24% above the intraday norm. By contrast, fewer than 300 puts have crossed the tape.

Generating the most attention is the weekly 11/8 3.50-strike call, which has seen close to 2,400 contracts switch hands -- almost all of them at the ask price, pointing to buyer-fueled activity. This strike currently holds open interest of just 643 calls, and implied volatility ticked higher on a number of mid-sized block trades, making it safe to assume that fresh long positions have been added here.

Since the contracts crossed at a volume-weighted average price (VWAP) of $0.47, the buyers are expecting SIRI to ascend past the breakeven rail of $3.97 (strike price plus the VWAP) by the close on Nov. 8, when these weekly options expire. Since breakeven is just a stone's throw away from the equity's present perch, it's not surprising that the delta for this call stands at 0.84 -- implying it has an 84% chance of staying in the money throughout its lifetime. Should the stock be trading south of the strike price at expiration, though, today's bulls will only be forced to part with the initial cash outlay.

From a technical standpoint, SIRI has gained roughly 37% in 2013, while besting the broader S&P 500 Index (SPX) by 5.6 percentage points during the past three months. On the charts, the equity's late June pullback was cushioned by its 40-week moving average, which has served as support since July 2012.

It should also be noted that Sirius XM Radio Inc (NASDAQ:SIRI) is scheduled to report quarterly earnings before the market opens on Oct. 24, and has trumped or matched consensus bottom-line estimates in seven of the past eight quarters. Even better, the shares have averaged returns of 1.3% and 1.5% the day and week after posting results, respectively. For the third-quarter, analysts are predicting a profit of 2 cents per share.

Option Briefs offer a concise look at recent notable trading activity. For more in-depth coverage of securities from an Expectational Analysis® perspective, please visit our Trading Floor Blog section.


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