Sirius XM Radio Inc (SIRI) is a satellite radio company broadcasting music, sports, comedy and news through a subscription based model. The stock is trading around $3.96 in a 52 week range of $2.55-$4.18. The stock has been performing very well this year, outperforming the broader market, rallying over 38% year to date. Recent usual options activity in SIRI suggests that the stock could continue its rally through the end of the year. Early in yesterday’s trading session a trader sold 32,000 SIRI Nov 4 puts for $0.07. This is a very bullish trade that obligates this trader to buy 3.2 million shares of stock on expiration anywhere below $4.00. This provides us with a great setup for a covered call.
Trade: Buying 100 shares of SIRI for $3.96 for every Nov 4 call for $0.10
Reward: $14 per 1 lot
Breakeven: $3.86
If the stock is above $4.00 on expiration this trade will net its maximum profit of $14 per 1 lot. This trade also profits anywhere above $3.86. Should the stock close above $4.00 on expiration this trade will net an annualized return of 79.8%.
