Sirius XM Holdings Inc. (SIRI) Options Traders Eye an Extended Uptrend

Although Macquarie waxed optimistic on Sirius XM Holdings Inc.'s (NASDAQ:SIRI) "fierce" balance sheet, the shares are retreating from 10-year-high territory

by Karee Venema |

Published on Jan 11, 2017 at 11:32 AM
Updated on Jan 11, 2017 at 11:34 AM

After hitting a 10-year high of $4.67 on Tuesday, shares of Sirius XM Holdings Inc. (NASDAQ:SIRI) are down 0.9% at $4.59. Today's pullback comes even after Macquarie reiterated its "outperform" rating and $5 price target, saying "standalone fundamentals for Sirius XM are just as good with a fierce balance sheet" and calling the shares "attractive." Plus, although SIRI's Chief Financial Officer David Frear recently called a potential takeover of Pandora Media Inc (NYSE:P) "not very likely," the brokerage firm said a P-SIRI marriage could "singlehandedly resolve Sirius XM's digital strategy." And while SIRI options volume remains light on an absolute basis, the trend toward calls is still intact.

Specifically, 429 SIRI calls and zero puts are on the tape so far. More broadly, speculative players at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 26.99 calls for every put over the past 10 sessions. Nevertheless, this ratio ranks higher than 94% of all comparable readings taken in the past year, meaning long calls have been initiated over puts at a near-annual-high clip.

Diving deeper, SIRI's February 4.50 call has seen the biggest rise in open interest over this time frame, with 5,023 contracts added. This strike is now home to peak open interest in the back-month series, with 9,184 contracts outstanding. According to Trade-Alert, it looks like most of this activity has been of the buy-to-open kind, meaning speculators expect SIRI to settle north of $4.50 at the close on Friday, Feb. 17 -- when the options expire.

And while the majority of analysts maintain a "strong buy" rating toward SIRI, the stock is heavily shorted. In fact, while short interest declined 3.5% in the most recent reporting period -- after topping out at a two-year peak in early December -- these bearish bets still account for a lofty 16.6% of the security's available float. Should SIRI resume its longer-term uptrend, a continued round of short covering could provide tailwinds.

However, although the shares have been in a solid uptrend since their early 2009 bottom -- and are up more than 22% year-over-year -- the $5 level is looming just overhead. This level represents a 61.8% Fibonacci retracement of SIRI's December 2005 high and February 2009 low since May 2005, and shares of Sirius XM Holdings Inc. (NASDAQ:SIRI) haven't explored territory north of here since May 2005.

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