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At $3.92, Sirius XM Radio Inc (NASDAQ:SIRI) is two pennies off a session high -- which also represented a five-year acme -- on news that the company will offer $600 million of senior notes with a 2020 maturity date. The proceeds will help SIRI redeem another set of senior notes due in 2018. Not surprisingly, these developments have traders flocking toward the broadcaster's calls, as 23,000 contracts have traded so far -- almost five times the usual, and more than 11 times the number of puts exchanged. The top position belongs to the October 4 call, where 6,255 contracts have changed hands, including a block of 1,921.
The near-the-money calls traded mostly on the ask side, while implied volatility has ticked 3.7 percentage points higher -- hinting at the initiation of new positions. Additionally, information from the International Securities Exchange (ISE) confirms the presence of some buy-to-open activity. The volume-weighted average price (VWAP) for taking up the long positions is $0.09, which translates to a breakeven point of $4.09 (strike price plus VWAP) at expiration.
North of that level, the call buyers will profit as the underlying rises. Currently, the market is giving the option a 42% chance of finishing in the money by its Oct. 18 expiration date, per a delta reading of 0.42. If, however, the shares remain beneath the strike throughout the option's lifetime, the maximum potential loss is capped at the initial cash outlay. It doesn't look like that premium is very steep right now, either, given SIRI's Schaeffer's Volatility Index (SVI) of 29%, which ranks lower than 89% of similar readings from the past 52 weeks. What's more, some of these modestly priced calls could be the work of displeased short sellers looking to hedge their bets -- despite the stock's move to new highs, more than 10% of its float is sold short.
As alluded to earlier, Sirius XM Radio Inc (NASDAQ:SIRI) is hovering just beneath multi-year highs. From a wider technical perspective, the shares have gained around 36% year-to-date and 58% on a year-over-year basis.
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