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Sirius XM Option Traders Bet On a Breach of Support

SIRI's January 2013 3-strike put is seeing buy-to-open activity today

by 1/14/2013 11:57 AM
Stocks quoted in this article:

Short-term bears are circling Sirius XM Radio Inc (NASDAQ:SIRI - 3.15) today, placing bets that the stock's recent positive momentum will run out of steam by week's end. The most active option on the day is SIRI's January 2013 3-strike put, which has seen around 900 contracts change hands. The majority of these have gone off at the ask price, and implied volatility was last seen 1.9 percentage points higher, indicating buy-to-open activity.

In order for these bearish bets to be profitable by January expiration, traders need SIRI to finish out the week south of the $3 mark. Specifically, speculators paid a volume-weighted average price (VWAP) of $0.01 per contract, making breakeven at $2.99 (strike minus VWAP), or 5% below the stock's current price.

Widening the scope reveals that puts have been the options of choice on SIRI in recent weeks. In fact, the equity's 10-day International Securities Exchange (ISE)/Chicago Board Options Exchange (CBOE)/NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.97 ranks in the highest percentile of its annual range. In other words, option buyers are more pessimistically aligned now than at any other point during the past year.

Echoing this bearishly skewed bias is SIRI's Schaeffer's put/call open interest ratio (SOIR) of 0.60, which ranks above 81% of other such readings taken in the past year. In simpler terms, short-term speculators are more put-heavy than usual toward SIRI.

On the charts, SIRI has been stair-stepping its way to a string of new highs in recent months. Additionally, the equity has outpaced the broader S&P 500 Index (SPX) by 10 percentage points over the past 20 sessions, and bounced more than 23% off its most recent low of $2.55, which was recorded on Nov. 15.

This upward momentum has the stock's Relative Strength Index (RSI) of 72 wading in overbought waters, and SIRI is experiencing a modest pullback in today's session. At last check, SIRI -- which is being taken over by Liberty Media Corp (NASDAQ:LMCA) -- had given back 0.2% to trade at $3.15. However, the equity has finished two straight weeks atop the $3 mark. Should this level continue to hold as support through Friday's close, the most today's put buyers can lose is the initial premium they paid.


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