The Key Level Sirius XM Holdings Inc. (SIRI) Call Buyers are Watching

An unusual crop of Sirius XM Holdings Inc. (NASDAQ:SIRI) call buyers has been targeting the $4 level

May 25, 2016 at 3:01 PM
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Sirius XM Holdings Inc. (NASDAQ:SIRI) has been surrounded by pessimism lately, despite the stock barely moving on the charts since early March. But for a second consecutive day, a rare crop of options bulls has sprung up, eyeing a key level that could hinder the stock going forward.

SIRI is nearly flat on a year--to-date basis. From a wider perspective, though, the shares plunged some 18% from the first session of 2016 through early February -- when they hit a two-year low of $3.29 -- but their quick recovery came up just short of the $4 level, which had been providing some support in late 2015. Since then, the stock has been stuck in the $3.80-$4.00 range, though it appears SIRI's 80-and 200-day moving averages have been supporting the shares through this lull. Today, SIRI is up 0.8% at $3.99.

Meanwhile, in the options pits, long puts have more than doubled calls over the past two weeks on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Moreover, the resulting 10-day put/call volume ratio of 2.35 sits higher than 88% of the past year's readings.

For the last two days, however, SIRI has seen an influx of call buyers. On Tuesday, the stock's September 4 strike saw the most volume by far, with 11,605 contracts traded. And it appears many of these calls were bought to open, as traders target a move above the $4 by September options expiration.

Today, calls are trading at four times their typical intraday pace. The July 4 call is most active, where it looks like new positions are being purchased. Perhaps even more significantly, traders appear to be targeting the 4 strike across multiple series. In fact, peak open interest across all series is currently found at the stock's June 4 call, where more than 51,000 open positions reside. In other words, $4 could continue to act as a stumbling block for the shares in the near term, as the hedges related to these bets unwind ahead of front-month options expiration.

On a positive note, buyers of Sirius XM Holdings Inc.'s (NASDAQ:SIRI) short-term options are likely getting a fantastic bargain right now, relatively speaking. The stock's Schaeffer's Volatility Index (SVI) of 20% is parked in the low 9th percentile of its annual range. Likewise, its 30-day at-the-money implied volatility was last spotted in the 8th annual percentile, at 22.6%, after tapping a 12-month low earlier in the session. That means premium on SIRI's short-term options is pricing in historically low volatility expectations at the moment.

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