On Friday, shares of Sirius XM (NASDAQ:SIRI) popped up 19 cents a share in a matter of minutes, on positive news about a copyright royalty decision. And we did see the shares finally go over $3 in after hours trading right after the decision was announced.
The U.S. satellite-radio broadcaster, rose the most in four months after a favorable ruling by the Copyright Royalty Board on how much the company has to pay in music royalties through 2017.
The judges that make up the board determined that the rates for Sirius to pay SoundExchange, an organization that collects royalties for musicians, will increase to 9 percent of gross revenue in 2013 from 8 percent this year. The fees will then increase by half a percentage point every year until 2017.
But was this news alone, enough to send the shares that much higher? Some speculated that either the buybacks had begun, or John Malone was shopping again. However, during the last ten minutes of trading when the shares spiked, the individual sales were too small (ranging on average from 100 to 2000 shares each) for a buyback. Others thought that it was the combination of the news and an impending short sqeeze that caused the spike, which is very possible. Short investors are on pins and needles waiting for a chance to cover, and they are panic buying with any good news that could send the shares substantially higher than they are already:
|Dec 14||0.05 Dividend|
So what will happen to the share price this week. Was this news enough to sustain these new levels? Considering that the short interest in Sirius is historically high, the price will probably stay up, barring any major negative macro news. This is not what the shorts wanted to hear. And to add to their misery, this coming Friday is Tripple Witching Friday. It only happens on the third Friday of each third month (March, June, September, and December) four times a year, right before the end of each quarter. This is when different options expire, causing extreme volatility in the market:
It is the simultaneous expiration (or rollover) of various futures and options contracts. These contracts include some of the stock index futures, some of the stock index options, and the individual stock options. The simultaneous expiration of the three types of markets is the reason that the event is known as triple witching. However, with the addition of some single stock futures contracts, triple witching is sometimes referred to as quadruple witching.
Triple or quadruple witching can cause erratic behavior in the affected (and some non affected) markets, both during the week preceding, and on the expiration day. Some traders take no notice of this, some recommend caution, and others recommend not trading at all. Which reaction you choose will depend upon your trading style (scalping, day trading, etc.), your trading system, and primarily your level of trading experience (i.e. new traders will probably be more cautious than experienced traders).
The shares are already up 60% for the year, and Sirius continues to beat the major market indices. Analysts expect shares to go even higher, based on Q4 predictions.
Two months ago the earnings estimates were raised from .02 a share, which is double the .01 last year for Q4, to .03 per share. This would be triple last years results. Many feel that these numbers are already baked into the price. But there is a chance that the EPS could end up even higher at .04 or more.
|EPS Trends||Current Qtr.|
|7 Days Ago||0.03||0.02||0.53||0.10|
|30 Days Ago||0.03||0.02||0.54||0.10|
|60 Days Ago||0.03||0.03||0.55||0.10|
|90 Days Ago||0.02||0.02||0.55||0.10|
And the new car sales are expected to show gains again next year in 2013. Since the installation of Sirius XM satellite radios in the cars is the number one source of revenue for the company, this is welcome news. But not for the shorts. So barring any adverse decisions due to the fiscal cliff next week, the shares should continue to climb until Friday. History has shown that many options traders will wait until the last possible minute to decide what to do with their options. Because of this the last hour of trading on Triple Witching Friday is called the Triple Witching Hour. As I have mentioned in the past, if you did short this stock, you should not wait until the end to cover.
Disclosure: I am long SIRI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.