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Sirius XM Holdings Inc. (SIRI) Call Buying Hits Fever Pitch

Sirius XM Holdings Inc. call traders have shown an affinity for the 3.50 strike

by 3/19/2014 10:08 AM
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Sirius XM Holdings Inc. (NASDAQ:SIRI) has grown increasingly popular among option bulls in March, despite the stock's month-to-date loss of 6.1%. At the end of February, the streaming radio provider sported a Schaeffer's put/call open interest ratio (SOIR) of 0.26, in the 44th percentile of its annual range. Now, the equity's SOIR sits at an annual low of 0.17, implying that short-term options traders haven't been more call-biased during the past year.

During the past two weeks on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open nearly 79 SIRI calls for every put. In fact, the resulting 10-day call/put volume ratio of 78.61 sits at a 52-week peak, suggesting option buyers haven't favored SIRI calls over puts by a wider margin during the last 12 months.

Digging deeper, the 3.50 strike has been a hub for short-term call traders lately. Close to 4,000 contracts were added at the March 3.50 strike during the past two weeks, though the deeper out-of-the-money 4 strike remains home to peak front-month call open interest, with more than 70,000 contracts in residence. Meanwhile, the April 3.50 call has seen roughly 42,000 positions established over the last 10 sessions, and now harbors close to 82,500 contracts outstanding.

In fact, SIRI yesterday saw buying activity at the April 3.50 call, which sports a delta of 0.36. In other words, the calls have a roughly 36% chance of landing in the money at expiration on Thursday, April 17. Along the same lines, traders also bought to open the weekly 4/25 3.50-strike calls, the delta of which is 0.39, thanks to an added week of time value.

As alluded to earlier, SIRI has struggled in March, settling yesterday's session at $3.39. The stock is now clinging to support in the $3.35-$3.40 area -- which has acted as a foothold since mid-2013 -- but remains south of its 10-week and 20-week moving averages. This duo of trendlines has rejected SIRI's advances since mid-October, and is currently docked in the $3.55-$3.60 neighborhood.

Considering Sirius XM Holdings Inc. (NASDAQ:SIRI) is less than 4 points from zero, it's not too surprising to find calls are the options of choice. (While there is still room for the shares to go lower, profit potential from long puts is limited, compared to buying puts on a higher-priced stock.) However, the aforementioned glut of call open interest at the 3.50 strike could exacerbate short-term resistance in the area.


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