Option Trader Bets Big on Sirius XM

11/21/2011 11:18 am EST

Focus: OPTIONS

Elizabeth Harrow

Financial Analyst, Schaeffer's Investment Research, Inc.

Two massive call option blocks were purchased last week on Sirius XM Radio (SIRI) as one trader aims to capitalize on a potential move above stubborn resistance in the months ahead.

Call volume skyrocketed last week on Sirius XM Radio Inc. (SIRI), with roughly 48,000 of these bullishly oriented options crossing the tape during the course of one day’s session alone. By contrast, SIRI typically sees fewer than 9,200 calls change hands on an average day. Meanwhile, only 474 puts were traded.

Most of the action took place at SIRI’s March 2 call, where 44,029 contracts were exchanged. Nearly all of these calls traded at the ask price, suggesting they were purchased, and the bulk of the volume was tied up in two massive blocks of nearly 20,000 contracts apiece. Open interest at this long-term strike rose overnight by 43,275 contracts, confirming that a deep-pocketed player was buying new out-of-the-money calls on SIRI.

By purchasing these March 2 calls, the trader is looking for SIRI to rise above $2 per share over the next four months until expiration. The stock hasn’t staged a weekly finish north of $2 since late July, thanks to broad-market headwinds and descending resistance from its ten- and 20-week moving averages.

However, SIRI is lingering just north of support in the $1.50 area, which is also home to its ascending 80-week trend line. This region contained a drastic pullback in early October and could continue to serve as a technical floor for the shares during the near term.

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By Elizabeth Harrow, contributor, Schaeffer’s Research

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