Sirius XM: $3.50 Fireworks In May?

| About: Sirius XM (SIRI)

I have had a couple of missed calls in the past. I sold out of my Sirius XM (NASDAQ:SIRI) position last May near $2 per share expecting lower pricing that never came. In July of 2011 I purchased January 2012 $2.00 calls only to see them reduced to a penny each from the precipitous drop October brought that same year. Likewise the $2 calls I had written against my position in May of that same year left me out of the loop on the sharp gains the stock had that month.

Thankfully I have been correct many more times than not, but the misses still sting a bit. So have I missed another call? With many suggesting that Sirius XM is about to find its share price rolling over, my call last week of $3.50 or beyond in the near term appears as though it may not come true.

I'm holding firm, though, and I think investors, or shall I call them "traders," that get bored so quickly over the course of a single week and sell out might be kicking themselves rather soon.

It's important to maintain perspective. When the market tests your patience stick with that long-term conviction that drove you to invest in the stock in the first place. With Sirius XM investors should be well aware that a significant buyback plan is underway, and it has already been announced that hundreds of millions of dollars have been used to repurchase stock, with possibly billions more to come.

What news is this? Sirius XM first released on Wednesday that it had made an offering of $500 million in notes due 2020, and then in a one two punch at the end of the day released that a second block of $500 million in notes would be offered due 2023.

The following should be music to the ears of investors:

The Senior Notes due 2020 will bear interest at an annual rate of 4.25% and the Senior Notes due 2023 will bear interest at an annual rate of 4.625%.

Sirius XM intends to use the proceeds of the offerings of the new Senior Notes for general corporate purposes, which may include, from time to time and as market conditions warrant, share repurchases and the repurchase, redemption, defeasance, tender or repayment of its outstanding indebtedness. Specifically, the company intends to repay all outstanding drawings of $150 million under its revolving credit facility with a portion of the proceeds from the offerings.

With $1 billion about to flow into the company in cash from the bond offering, and $150 million of that used to repay the revolver, that leaves $850 million available plus the full $1.25 billion revolver for Sirius XM to draw upon for buybacks. That's $2.1 billion. Sirius XM has already repurchased 209 million shares. Sirius XM has now made it patently clear that it is serious about these buybacks.

So why hasn't the stock appreciated much beyond $3.40? Where is the $3.50 and beyond I am looking for? Take a deep breath, calm down, and remember the long term fundamental story. Now, with over a week behind us, let's take a quick look at the short term technical.

It's a near textbook ascending triangle on the 60 minute chart. Decreasing volume, steady highs and increasing lows are shown here. That's bullish, and it shows that bears are losing out vs. bulls.

Furthermore, money flow as reported by has been consistently positive since Sirius XM's Q1 call. Two hundred million in positive cash flow the day of and the day following the call, and tens of millions in positive cash flow since then. Bullish point number two.

Third, options activity for Friday the 10th has shown significant numbers of option calls purchased vs. puts, and those calls have typically gone for asking price. Option players are betting on the price going up from here, and given that the day traded flat at $3.39 virtually all day long, that sentiment favors a break to the upside rather than the downside.

Looking at short-term technicals can sometimes help if you are an investor with a longer term horizon on the stock. I would not be a seller of Sirius XM here. Things look very positive heading into next week, and other than some minor concerns about the macro environment I have no concerns with my investment in Sirius XM.

As I continue to say, patience rules the day, and investor's patience should be rewarded with continued upside in the near future.

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.

Additional disclosure: I am long SIRI January 2014 $2 and $2.50 calls.

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