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Option Brief: Traders didn't shy away from Sirius XM Holdings Inc. (NASDAQ:SIRI) yesterday, especially on the call side, where volume tripled the daily average. Accounting for roughly half of the 93,000 calls traded was the April 3.50 strike, where 46,769 contracts changed hands. Open interest at the near-the-money strike ballooned overnight, indicating freshly minted bets.
Of particular interest was a block of 11,850 contracts, which crossed the tape at the bid price during the session's late afternoon hours. Implied volatility jumped higher with the transaction, and data from the International Securities Exchange (ISE) confirms sell-to-open activity.
By writing the calls to open, Wednesday's speculator anticipates the call -- SIRI is currently hovering at $3.44 -- will expire out of the money at the closing bell on Thursday, April 17. If shares of the Internet radio issue continue to churn south of $3.50 during the next two-plus months, the options will expire worthless, and the seller will retain 100% of the initial premium received. However, if the stock rallies, he could be assigned, and forced to sell the shares at $3.50 apiece no matter how high they're trading. The activity here could also be indicative of a shareholder initiating a covered-call strategy.
Note that these neutral-to-bearish bets followed a pair of bearish analyst notes issued yesterday morning, which sent the shares 2.6% south. These negative brokerage notes were prompted by Sirius XM Holdings Inc.'s (NASDAQ:SIRI) fourth-quarter earnings miss from Tuesday morning.