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Tracking Pre-Earnings Bets on Sirius XM Radio Inc (SIRI)

Weekly call options popular as SIRI flirts with new high

by 10/9/2013 11:38 AM
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Sirius XM Radio Inc (NASDAQ:SIRI) was among the few bright spots in the market yesterday. The shares eased to another new six-year high, hitting the $4.00 mark for the first time since February 2007. In response -- and in anticipation of the satellite radio company's upcoming earnings report -- options traders are active today on the call side of the fence. In early trading, call volume is running 8% hotter than a typical day.

Most active is the weekly 11/1 3.50-strike call, where a number of mid-sized blocks traded in rapid succession just after the opening bell. These blocks changed hands at the ask price, as have 98% of all the 2,000-plus contracts trading here. Volume easily trumps open interest of 103 contracts, and implied volatility has risen 4.3 percentage points, all pointing to the initiation of new short-term bullish bets.

In order for these calls to turn a profit at expiration in just over three weeks, SIRI will need to be trading above $3.94, or the strike price plus the volume-weighted average price of $0.44. If SIRI tumbles from its present perch of $3.86 to slip below the strike price, the maximum potential loss for today's call buyers is 100% of the premium paid.

Between now and expiration, SIRI will report third-quarter earnings before the open on Oct. 24. The company's earnings track record is far from flawless; SIRI has matched analysts' expectations on five occasions, exceeded them twice, and missed once in the past two years. Still, the stock has managed to gain an average of 1.3% in the day after earnings hit the Street.

As earnings approach, speculating with Sirius XM Radio Inc (NASDAQ:SIRI) options has become a pricier undertaking. Specifically, the equity's 30-day, at-the-money implied volatility (IV) has surged from 29.8% on Sept. 25 to 39% today. What's more, IV for the aforementioned weekly call stands at 51.2%, versus SIRI's 20-day historical volatility of 24.3%.

Option Briefs offer a concise look at recent notable trading activity. For more in-depth coverage of securities from an Expectational Analysis perspective, please visit our Trading Floor Blog section.


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