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Option Brief: Call volume soared to more than nine times the daily average in Sirius XM Holdings Inc.'s (NASDAQ:SIRI) options pits on Tuesday. By the numbers, around 52,000 calls were exchanged, compared to fewer than 200 puts. The demand for short-term options was evident, as the equity's 30-day at-the-money implied volatility shot 10% higher to 35.4% -- its loftiest perch since late April. However, the majority of the day's activity occurred at the December 3.50 call, as one speculator forecast a long-term churn for the satellite radio issue.
Around midday, two blocks totaling 50,000 contracts changed hands at SIRI's December 3.50 call -- closer to the bid price at $0.23 apiece -- resulting in an initial net credit of $1.15 million (number of contracts * premium collected * 100 shares per contract). All of this volume translated into open interest overnight, making it safe to assume that a fresh batch of calls was sold to open -- a theory echoed by Trade-Alert.
By initiating these short calls, the trader is expecting SIRI to stagnate south of the strike price through December options expiration. In this best-case scenario, the calls will expire worthless, and the speculator can pocket the net credit received as her maximum potential reward. Should SIRI stage a rally over the next six months, however, the call seller may be at risk of assignment, and open to theoretically unlimited losses.
Technically speaking, Sirius XM Holdings Inc. (NASDAQ:SIRI) has not given traders much to cheer about, with the shares 4% lower year-to-date at $3.33, and perched near their 52-week breakeven mark. What's more, the equity has met a stern layer of resistance near the $3.40 mark in recent months, and continues to stare up at its 320-day moving average -- currently located at $3.49. Against this backdrop, yesterday's call writing may have been part of a larger covered-call strategy, as a SIRI shareholder looks to earn some additional income on her uninspiring stock investment.