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Option players have been scooping up calls over puts on Sirius XM Radio Inc (NASDAQ:SIRI - 2.84) of late, as evidenced by data at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). During the course of the past 20 sessions, traders on these exchanges have bought to open 1,551 calls for every 100 puts on SIRI.
This trend continued in Monday's session, where call volume easily outpaced put volume. By the numbers, around 14,000 call contracts crossed the tape, compared to fewer than 3,200 put contracts. Call players turned their attention to the January 2013 3 strike, which saw nearly 1,800 contracts trade. The majority of these crossed at the ask price, implied volatility ticked higher, and open interest rose overnight -- three indications that a portion of yesterday's volume was of the buy-to-open variety.
By purchasing these near-the-money calls, traders expect SIRI to finish above the $3.10 mark (the strike plus the volume-weighted average price [VWAP] of $0.10) by January expiration. This represents a 9.2% premium to current levels. Should the stock fail to topple this breakeven mark, the most the call buyers stand to lose is the initial premium paid.
Technically, SIRI has made a solid run over the past 52 weeks, with the shares adding around 56% in that time. More recently, the equity has outperformed the broader S&P 500 Index (SPX) by 12 percentage points during the previous three months. On the charts, the equity has been pushed higher by its 10- and 20 week moving averages, which have been lifting SIRI upward since early August. However, the stock has not experienced a daily close above the $3 mark since March 25, 2008.
In light of this stubborn layer of overhead resistance, the rush toward SIRI calls may simply represent shareholders picking up hedges against their pessimistic positions. Short sellers increased their bearish exposure by nearly 8% during the last two reporting periods, and short interest now accounts for a lofty 9.4% of the stock's available float.
SIRI took an early lead in today's session, and was last seen 1.4% higher to hover near $2.84.