Stocks quoted in this article:
Having recently bounced from a measure of short-term technical support, Sirius XM Radio Inc (NASDAQ:SIRI) has begun to once again capture the attention of bullish options speculators. In yesterday's trading, the October 3.50 call was in focus, as more than 1,000 contracts traded, the majority of which translated as new open interest overnight. As 90% of the volume traded off the ask price and implied volatility ticked higher, we can assume a portion of these orders were of the buy-to-open variety.
Based on the volume-weighted average price (VWAP) of $0.27, breakeven at expiration in just over six weeks is $3.77 (the strike price plus the VWAP), or just 2.2% above SIRI's current price of $3.69. Delta on the option currently stands at 0.71, or 71%, suggesting a better than 2-in-3 chance the call will be in the money when it expires. Beyond the breakeven point, gains are theoretically unlimited over the life of the option. Whereas if Sirius shares slip back south of the strike price ahead of expiration, the call buyers have only risked the premium paid.
SIRI shares have gained more than 46% over the past 12 months, and are up nearly 28% in 2013. More recently, the stock has tacked on 21.4% from its June 24 low. And just last week, the shares rebounded off their 80-day moving average, which helped cushion that same early summer slide (as well as pullbacks in late 2012).
Nevertheless, there is still plenty of skepticism levied against Sirius, as evidenced by heavy short selling. Even after a 10% decline in short interest during the last two reporting periods, more than 10% of the stock's float remains sold short. In fact, it would take close to 10 sessions to cover these short positions, at the stock's average daily volume. Given that the back-month calls scooped up on Wednesday were in the money, however, it is unlikely short sellers were using these to hedge their bearish bets.
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.