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Since touching a three-year peak of $2.97 in mid-October, the shares of Sirius XM Radio Inc (NASDAQ:SIRI - 2.74) have pulled back to test support in the $2.70 neighborhood. However, it looks like one trader is expecting SIRI to assail new heights within the next couple of months, and is employing both puts and calls to bet bullishly on the satellite radio concern.
During the course of Wednesday's session, SIRI saw around 38,000 calls and 24,000 puts change hands, far surpassing its average daily volume of around 13,000 calls and 6,000 puts. Most of the action centered on the January 3 call and January 2.50 put, which saw roughly 23,000 and 22,000 contracts traded, respectively -- mostly in symmetrical blocks marked "spread."
More specifically, the calls crossed at the ask price of $0.08 each, suggesting they were bought, and the puts traded at the bid price of $0.09 apiece, pointing to seller-driven volume. Considering open interest skyrocketed at both strikes overnight, it seems the investor constructed a split-strike version of the synthetic long stock strategy for a net credit of a penny per pair of contracts.
By implementing the spread, the speculator -- like a shareholder -- is hoping SIRI ascends atop the $3 level. In this best-case scenario, the sold puts will remain out of the money, while the bought calls will gain intrinsic value. However, since the spread was established for a net credit, the trader can at least pocket the initial premium received, as long as SIRI stays north of $2.50 and the puts remain worthless.
In early trading, SIRI has tacked on 1.3% to hover near the $2.74 level.