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Call players turned out on Sirius XM Radio Inc (NASDAQ:SIRI) on Friday, as the stock rallied to a fresh five-year high of $3.73. By the time the dust settled, roughly 26,000 calls had crossed the tape, representing nearly three times the average daily volume, and more than nine times the number of puts that traded.
Longer-term traders eyed a deeper trek into multi-year high territory, and scooped up the stock's December 5 call for a volume-weighted average price (VWAP) of $0.06. Of the 1,210 contracts that changed hands, 83% went off on the ask side, implied volatility ticked 1.1 percentage points higher, and open interest rose over the weekend, pointing to buy-to-open activity.
By purchasing the deep out-of-the-money calls, traders expect SIRI to tackle the $5 mark by the close on Dec. 20. More specifically, they will begin to profit with each step north of $5.06 (strike price plus the VWAP) Sirius XM Radio takes over the next several months. This breakeven mark not only represents expected upside of 35% to the stock's current price of $3.75, but also territory not charted by SIRI since April 2006. The options market doesn't seem too confident the call will land in the money ahead of expiration, as delta for the option rests at a slim 0.13, or 13%.
Friday's accelerated call volume diverged from the growing trend seen in SIRI's options pits of late. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio has moved to 0.25 from its July 1 reading of 0.16. While this ratio does indicate that the quantity of long calls initiated in recent weeks outpaces long puts by a margin of 4-to-1, it ranks in the 83rd percentile of its annual range. In simpler terms, puts have been bought to open over calls at a faster-than-usual clip in recent weeks.
On the charts, Sirius XM Radio has been stair-stepping its way higher over the past 52 weeks, and the positive price action has translated into a year-over-year advance of 83%. More recently, the equity has found a technical friend in the form of its 60-day moving average. A quick bounce off this trendline in early July assisted in sending the shares to the aforementioned price peak on Friday.
Helping to stoke last week's upward momentum was a price-target hike to $4.45 from $3.85 at Pivotal Research, after the brokerage firm applauded SIRI's upbeat subscriber outlook. With the consensus 12-month price target of $3.70 for Sirius XM Radio Inc (NASDAQ:SIRI) running at a discount to current levels, an additional round of price-target hikes could create a contrarian boon for the stock. As it turns out, the equity tagged another record peak this morning, hitting $3.76 right out of the gate.