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Sirius XM Radio Inc (SIRI) Traders Eye Long-Term Gains

SIRI's January 2014 3-strike calls are being bought to open today

by 4/11/2013 11:37 AM
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After topping out at the $3.25 mark in early March, Sirius XM Radio Inc (NASDAQ:SIRI) pulled back. The consolidation brought the stock face-to-face with its underfoot 120-day moving average last Friday, and SIRI took a solid bounce off this supportive trendline. The shares have since added 4.7% to trade at $3.15.

Some speculators in today's session are expecting Sirius XM Radio to extend this upward momentum over the next nine months. Specifically, 1,764 January 2014 3-strike calls have changed hands thus far, nearly all of which have crossed at the ask price. With implied volatility last seen 2 percentage points higher, it appears that new bullish positions are being created.

The in-the-money LEAPS are being purchased for a volume-weighted average price (VWAP) of $0.45. In other words, traders will begin to profit with each step north of $3.45 (strike price plus the VWAP) SIRI takes through January options expiration. This breakeven mark represents territory not explored by Sirius XM Radio Inc since March 2008. Risk, meanwhile, is limited to the initial premium paid.

This bullishly skewed bias is nothing new for option traders, as evidenced by data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). During the course of the past 20 sessions, traders at these exchanges have bought to open 20,381 calls, compared to 3,400 puts, resulting in a call/put volume ratio of 5.99.

On the charts, Sirius XM Radio has been stair-stepping its way higher since hitting its late-May low of $1.78, with the shares up around 77%. As mentioned, the stock has recently resumed this uptrend, and has tacked on 0.5% in today's session.

Fundamentally, Sirius XM Radio Inc (NASDAQ:SIRI) last night announced that it has named Liberty Media Corp (NASDAQ:LMCA) -- SIRI's majority shareholder -- CEO Gregory Maffei as its new chairman. Additionally, the Internet radio issue is scheduled to unveil its first-quarter earnings report before the market opens on Tuesday, April 30.


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