Stocks quoted in this article:
Sirius XM Radio Inc (NASDAQ:SIRI) finished at $3.45 on Tuesday -- its highest closing perch since December 2007. As such, calls emerged as the options of choice, with 9,885 contracts crossing the tape. By comparison, only 612 puts were traded. The key $3.50 mark was once again in focus, as speculators eyed a deeper trek into multi-year high territory. Nearly all of the 2,809 July 3.50 calls traded went off at the ask price, and open interest added 2,111 contracts overnight, making it safe to assume that a fresh batch of bullish positions was initiated.
By purchasing the now at-the-money calls, traders will begin to profit with each step above $3.63 -- which is the strike plus the volume-weighted average price of $0.13 -- the stock takes through the close on July 19. This breakeven mark represents expected upside of 3.1% from the stock's current price of $3.52.
Delving deeper into the data, it appears that call players have been increasing their presence in SIRI's options pits in recent weeks. During the course of the past 20 sessions, traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 47,386 calls, compared to 7,829 puts, resulting in a call/put volume ratio of 6.05. This ratio stood at a slimmer 4.50 one month ago.
This trend is witnessed in Sirius XM Radio's Schaeffer's put/call open interest ratio (SOIR), as well. Since April 22, SIRI's SOIR has dropped to 0.30 from 0.37, as near-term call open interest rose 44%. The current ratio is ranked lower than 90% of similar readings taken in the past year, suggesting that short-term speculators have rarely been more call-heavy toward the security.
This bullishly skewed bias is understandable when looking at SIRI's technical backdrop. The stock has put in a solid performance against the S&P 500 Index (SPX) over the last month, besting the broad-market barometer by more than 8 percentage points. Additionally, the equity has tacked on a formidable 20.8% year-to-date. This momentum is continuing in today's session, with the stock tagging a fresh five-year high of $3.54 in early trading.
Going forward, SIRI could be positioned to encounter some contrarian-related tailwinds in the near term, as expectations toward the stock are low outside of the options arena. For starters, short interest accounts for 12.4% of the stock's available float, representing nearly two weeks' worth of pent-up buying demand. Plus, four out of 10 analysts maintain a "hold" or "strong sell" suggestion toward the stock, and the consensus 12-month price target of $3.66 is a slim 3.4% premium to today's technical milestone. Should SIRI continue to outperform, an additional round of upgrades and/or price-target hikes could prompt some of the weaker bearish hands to start cashing in their chips.