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Option Brief: Sirius XM Holdings Inc. (NASDAQ:SIRI) is 0.8% higher at $3.16, and options traders today are gambling on an earnings victory for the satellite radio provider. Ahead of the company's turn in the earnings spotlight Thursday morning, SIRI's short-term options are in demand, as the stock's 30-day at-the-money implied volatility (IV) hit another 52-week high earlier today.
So far, roughly 14,000 SIRI calls have changed hands, compared to fewer than 300 puts (though that bias isn't too surprising, considering the limited profit potential of the latter contracts). Most active by a mile is the May 3.50 call, where nearly 6,200 contracts have traded -- including a block of more than 4,000, which crossed at the ask price of $0.06 apiece around midday. IV at the strike surged 2.7 percentage points at the time of the trade, underscoring our theory of newly bought bullish bets.
By purchasing the calls to open, the buyer expects SIRI to be sitting north of $3.56 (strike plus premium paid) at the close on Friday, May 16, when the newly front-month options expire. However, considering short interest grew 30% during the past two reporting periods, it's possible that the speculator bought the out-of-the-money calls to hedge his shorted shares against a post-earnings rally. Whatever the motive, the maximum risk on the long calls is limited to the initial premium paid.
Again, though, Sirius XM Holdings Inc. (NASDAQ:SIRI) short-term options aren't cheap right now. The equity's Schaeffer's Volatility Index (SVI) of 44% stands just 1 percentage point from an annual high, suggesting speculators are paying up for their short-term contracts, relatively speaking.