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Sirius XM Radio Investors Turn Cautious as Shares Advance

SIRI's November puts are popular today

by 10/10/2012 2:27 PM
Stocks quoted in this article:

Puts are flying off the shelves on Sirius XM Radio Inc (NASDAQ:SIRI - 2.69) today. Around 12,000 contracts have crossed the tape, representing more than eight times the average daily volume for put options. The November 2.50- and 3-strike puts have emerged as two of the more popular trades on the day, and have seen roughly 9,650 and 1,650 contracts change hands, respectively. The majority of contracts at the 2.50 strike, and all of the contracts at the 3 strike, have crossed at the ask price, and volume is easily outstripping open interest, making it safe to assume that a portion of today's put activity is of the buy-to-open variety.

By initiating these long puts, speculators expect SIRI to finish south of $2.45 (the 2.50 strike minus the volume-weighted average price [VWAP] of $0.05) or $2.62 (the 3 strike minus the VWAP of $0.38) by November expiration. These breakeven levels represent respective drops of 8.9% and 2.6% from the stock's current perch.

Widening the sentiment scope, today's penchant for puts is a change of pace in the options arena, where calls have been noticeably active. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open nearly 27 calls for every put over the past two weeks. What's more, SIRI's 10-day call/put volume ratio of 26.95 ranks higher than 91% of other such annual readings taken in the last year, suggesting calls have been picked up over puts at a near annual-high clip in recent weeks.

For a stock that started 2012 south of the $2 mark, SIRI is refusing to give up without a fight. In addition to adding 48% on a year-to-date basis, the equity has outperformed the broader S&P 500 Index (SPX) by more than 19 percentage points during the last 60 trading sessions. Helping support this rising price action has been SIRI's 10-week moving average -- which has provided a foothold for the stock since early July.

In light of SIRI's steady rise up the charts, this recent activity in the options pits could represent investors picking up safeguards on both sides of the aisle. By buying to open protective puts, shareholders are able to protect profits against a potential short-term pullback. Meanwhile, by purchasing calls, short sellers are able to offset their pessimistic positions against any additional near-term upside. The stock currently sports an elevated short-to-float ratio of 12.1%.

In today's session, SIRI has bucked the broad-market trend lower, and was last seen up 2.3% to hover near $2.69.

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