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Sirius XM Traders Look Long-Term

Call and put volume are above average on the popular stock

by 5/21/2012 2:44 PM
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For a low-priced stock, Sirius XM Radio Inc (SIRI - 1.94) sure is popular. Its average daily stock volume, over the past three months, is 60 million shares. That's almost triple the average daily volume for Apple Inc. Inc (AAPL -553.86) (of course, cheaper shares mean more shares get traded).

The satellite radio pioneer is no slouch in the options department, either. There are currently more than 105,000 open calls and puts in the June, July, and August series combined. Looking out to LEAPS options, open interest is even more impressive. The January 2013 and 2014 series have seen notable activity in the options pits today.

In early-afternoon trading, call volume is running about two times the norm and put volume is three times higher than usual. The January 14 2.5-strike call has seen more than 7,500 contracts trade, while the January 13 3.0-strike put has seen more than 6,000 contracts trade hands. Open interest easily trumps today's volume levels, making it difficult to determine if the action is on the opening or closing side.

What we can see is that large blocks traded at both strikes, with the calls trading at the bid price of $0.23 and the puts going off at the ask of $1.36 (the trades were seemingly unrelated).

The calls may have been tied to a stock purchase, in which case the investor could be opening a buy-write (otherwise known as a covered call). A covered call has two avenues for collecting profits: the premium collected for selling an overhead call, and any gains the stock makes between the purchase price and the strike of the sold call. The covered call trader surrenders any gains in the stock above this strike. In today's example, the maximum profit per contract would be about $0.79, or the $0.23 credit for selling the call plus the $0.56 upside between the stock's current price and the $2.50 strike.

The puts, meanwhile, may be new bearish positions executed by traders who expect SIRI to stay below $3 through next January's expiration.

SIRI shares have been consolidating in a sideways range since last spring and are currently testing the mettle of their 80-week moving average, which contained a pullback in the shares in October and has not been violated on a weekly closing basis since 2009.

Meanwhile, the stock's Relative Strength Index (RSI) is hovering around 42.50, which is near an annual low for this reading. This implies an oversold condition, which means the shares could be poised for a bounce higher. The last time SIRI's RSI was around the 42 level coincidentally coincided with the last test of the stock's 80-week trendline.

Sirius XM weekly chart
Chart courtesy of StockCharts.com


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