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Sirius XM Radio Inc. Bears Lock In Pre-Earnings Bets


SIRI November puts were targeted yesterday.

Sirius XM Radio Inc (NASDAQ:SIRI) spiked 1.8% higher yesterday after the Internet radio provider announced that its Board of Directors approved an additional $2 billion stock repurchase program. Still, put activity on SIRI ramped up to nearly three times its average daily norm. By contrast, overall call volume came in much lower than usual.

Most popular by a long shot was the November 3.50 put -- representing a change of pace from Wednesday, when short-term calls dominated SIRI's options pits. Specifically, 6,066 contracts -- including two large blocks -- changed hands for a volume-weighted average price (VWAP) of $0.05. The lion's share of yesterday's contracts went off at the ask price, while open interest saw 5,583 positions added overnight, indicating fresh long put positions.

On the charts, SIRI has tacked on 43.4% over the past year, and hit a six-year high of $4.00 on October 8. With this in mind, the put buyers may be options traders betting on an end to the stock's technical reign, nut could also be shareholders insuring their positions against a potential pullback. Specifically -- while Wednesday's short-term call buyers expect SIRI to hold its ground ahead of its earnings report on October 24 -- yesterday's put players are gambling on a post-earnings dip for the stock.

Whatever the motive, these puts won't turn a profit unless SIRI -- perched at $3.93 -- slides beneath the breakeven rail of $3.45 (strike price minus the VWAP) by the close on November 15, when back-month options expire. Right now, chances of the put moving into the money during its lifetime are currently 1-in-6, as its delta rests at negative 0.17.

On that note, should Sirius XM Radio Inc remain atop the 3.50 strike upon expiration, the most yesterday's put buyers stand to lose is the initial premium paid.

This article by Milissa Hudepohl was originally published on Schaeffer's Investment Research.

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