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Option Brief: Options traders zeroed in on Sirius XM Holdings Inc (NASDAQ:SIRI) yesterday, with put volume running at more than nine times what's seen on an average trading day. Taking center stage was the January 2015 3.50-strike put, where more than 20,000 contracts changed hands, nearly all of which translated as new open interest overnight.
The large majority of these out-of-the-money put contracts traded at the bid price, suggesting they were sold to open for a volume-weighted average price (VWAP) of $0.45 each. If SIRI, currently trading at $3.72, maintains its perch north of this level through January 2015 options expiration, the traders will retain the initial premium collected as profit.
These long-term put sellers may have a different goal in mind than simply collecting the premium. If they see $3.50 as a reasonable entry price for Sirius shares, they might be taking this as a chance to get "paid to wait" for such an opportunity to present itself.
In other words, they earn the $0.45, which they keep if Sirius XM fails to move below $3.50. On the other hand, if the shares drop below the strike price prior to expiration, the put seller might be assigned, and required to buy the shares at $3.50 apiece. If that is the ultimate goal (to own SIRI at a price point of $3.50), this comes as a welcome turn of events, and the effective purchase price becomes $3.05, or the strike price less the VWAP collected.
Sirius XM Holdings Inc (NASDAQ:SIRI) has had a solid year, gaining close to 35% over the last 12 months. The shares last traded south of the $3.50 level in early July, which may be why Wednesday's put sellers are allowing some time for a pullback to play out, should they wish to scoop up the shares at a discount price.