Using Options to Get a Sirius Discount

If you're bullish on Sirius XM Radio Inc. (SIRI), you may find this post worthwhile. There are several ways I have been accumulating shares of Sirius while it has been trading in the 0.35-0.42 a share range. To understand this post you'll need somewhat of a background in stock options; to learn more check out my option trading E-Books.

Sirius Discount Option Strategy: It requires some patience, but the next time Sirius is up 5% or more, take a look at the call options for the December or January 2010 $1 strike. Sometimes the volume on these contracts is huge (when the stock is up nicely), and the bid is at 10 cents a share and ask at 15 cents a share, but most of the time I see the bid at 5 cents, and the ask at 10 cents. Using a similar strategy (didn't write the options out on the stock until 2 weeks after purchasing), I was able to pick shares up for 6 cents a piece, and write out the December $1 call option for 5 cents a share. My cost before commissions is a penny per share.

Today, if you could buy the stock at 40 cents a share, and receive 10 cents a share for the call option, you've lowered your cost by 25%. The question is - what if Sirius gets on a Sirius rally and blows through $1 a share? I guess I would be pretty disappointed, but then I'd most likely remember I tripled my investment. I know a lot of people who have bought into Sirius stock while it was $4 to $5 a share, and that's not to mention the XM shareholders from a couple years back. This strategy has allowed me to cost average my position down on Sirius, while giving me a great downside protection.

Disclosure: Long SIRI

Comments

[DemianRussian:]

I agree with Relmor on this. Not a good idea to be selling covered calls down here at all. Wait for the stock to spike to sell covered calls. You would be smarter to consider buying calls down here.

Jul 27 12:10 PM

[rickf:]

You want to buy Siri dirt cheap as a speculative play just sell the DEC or JAN $1 puts and be done with it. :)

Jul 27 12:20 PM

[Marco Hickey:]

It's a way to lower your cost for someone getting long and not to trade it every day. It is lowering your cost by 25% and puts you in for roughly 30 cents a share. Sirius needs to be at $1.11 a share by December to make this bet not worth it. This is if you want to get long. Do you think Sirius is going to get to $2 or $3 ever again? If they could make money it is one thing, but they can't. Short interest is less than 4% on this stock. Not to mention it has a long way to go before any institutions buy it.

On Jul 27 11:42 AM relmar2003 wrote:

> This is terrible advice. Not worth giving up 6 months time on my
> shares for .10 cents. And you wont get .15 cents at even .50 cents,
> so nice try. No chance. Better to wait till it breaks .60 cents
> again, to begin even looking at them, which it will here shortly.
> This guy wants you to shoot your load too soon. Dumb play. I doubt
> this guys is making this trade. If he is, he doesnt know options
> or what Q3 is going to do to there bottom line, hence hes playing
> a company he doesnt understand. I would never lock up my shares for
> .10 cents, before the Q3 comes out. No way. Not a chance. Patience.
> Very little time decay if you wait until after Q2 or before for the
> run up, and then try for a .15 or .20 cent grab. In July,/August,
> I need at least .25 cents to make it worth it. If this stock does
> run to $1, keep your shares, and write calls for .60 cents or more
> a share, covering you all the way back to .40 cents. Thats if it
> happens in the next couple months.

Jul 27 01:16 PM

[relmar2003:]

No, timing is everything. Buy them on spikes, sell back on the dips. No spike right now, therefore its a fool trade. Good luck even getting .10 cents right now. But if some poor sucker puts up a .10 cent sell right now, the first spike will take it out, and .15 or .20 might have been possible. Wasted money. This is the bottom. No need to hedge a .40 cent stock. Unless you see BK in the next 6 months, which is impossible for 2 years, at least, and now probably never.

Jul 27 02:33 PM

[relmar2003:]

I meant the reverse obviously. Sell the call on spikes, buy them back on dips. Sorry.

Jul 27 02:34 PM

[Marco Hickey:]

Look at it in terms of % not $.. Its a 25% discount if you can get it... Bid is 5 cents right now. On the next spike you may see a 10 cent bid... I did say it requires some patience...


On Jul 27 02:33 PM relmar2003 wrote:

> No, timing is everything. Buy them on spikes, sell back on the dips.
> No spike right now, therefore its a fool trade. Good luck even getting
> .10 cents right now. But if some poor sucker puts up a .10 cent sell
> right now, the first spike will take it out, and .15 or .20 might
> have been possible. Wasted money. This is the bottom. No need to
> hedge a .40 cent stock. Unless you see BK in the next 6 months, which
> is impossible for 2 years, at least, and now probably never.

Jul 27 02:40 PM

[SIRI-Doom:]

Looking for that 38 cent to get all in again?

Volume is low 14 mil at 3:40pm

Most activity is .002 blocks.

I don't see .002 cent trades as " the market " trading. The GS computer is driving SIRI today. I am holding 110k existing shares with plan to buy 50K shares at 38 cents. I do not see 40 as a low this week and I want that 2 cents.

Jul 27 03:57 PM

[connorport:]

The patience comes when you wait for the next spike upward and get .25-.30 out of the Dec 1.00's. If the stock pulls back then buy back to cover @ todays levels which would be around .10. That would be equal to three of your trades or .15, and on lets say 50k shares thats a clear 7500 with me in the drivers seat instead of the other way around. If the stock runs to a dollar and past then you can break even pretty easy chasing the value upward and waiting for a pullback. I never look at the strike as the day i lose my stock, i plan ahead to chase the value upward.


On Jul 27 02:40 PM Marco Hickey wrote:

> Look at it in terms of % not $.. Its a 25% discount if you can get
> it... Bid is 5 cents right now. On the next spike you may see a 10
> cent bid... I did say it requires some patience...

Jul 27 04:12 PM

[connorport:]

Today would be the day to purchase the stock and when the run happens you can margin off .10 - .15 at a time to bring your average down. I myself would chose to buy say 50k shares and when i buy back to cover, instead of pocketing the $7500 or trying to margin down i would try to buy more shares as the value of them at that time would be low giving me another 50% more shares to cover on the next run and so on.

Jul 27 04:18 PM

[connorport:]

Your theory would work well after earnings and if the stock flatlined. I do see you point. You're saying to play the nickel spead when the stock is flat. Find the buyer @ .15 and then find a seller @ .10 and keep the change. I myself would advise to wait until Q2 and see where we are headed before making any moves. I would also play the nickle spread on the Jan $2.50's before i would try the Dec 1's. Its easier to cover a run on $2.50's than the 1's when the stock is under the 1 but way under the $2.50's with a long way to go.

Jul 27 04:26 PM

[SIRI-Doom:]

WASHINGTON (AP) SEC makes emergency rule targeting 'naked' short-selling permanent

The Securities and Exchange Commission announced that it took the action on the rule targeting so-called "naked" short-selling, which was due to expire Friday.

The SEC rule includes a requirement that brokers must promptly buy or borrow securities to deliver on a short sale.

NO UPTIC RULE? What they did was tooo little...Making this permanent will have zero effect. It already did very little so what is making it permanent goint ot do?

The effort has been great. But, the SEC is giving us a snow job...

Jul 27 04:38 PM

[SIRI-Doom:]

Well, yes.
But I gota pay bills some how.....
What was a great retierment is now a job to trade for a few pennies.

The 2Q report is a monkey messing with the 3 sent spread. But, it is the same every Q. Past eleven months this has worked with price ajustment along the way.

The larger problem is what to do the day before the 2Q report. Sell or hold?

On Aug 6th with an 8 am report the trade queue will be full before the open with what ever already happend.


On Jul 27 04:18 PM connorport wrote:

> Today would be the day to purchase the stock and when the run happens
> you can margin off .10 - .15 at a time to bring your average down.
> I myself would chose to buy say 50k shares and when i buy back to
> cover, instead of pocketing the $7500 or trying to margin down i
> would try to buy more shares as the value of them at that time would
> be low giving me another 50% more shares to cover on the next run
> and so on.

Jul 27 04:52 PM

[User 335558:]

Hey Pal If a train left Chicago at 10 Am and a Bus left California at 3 PM How many people would be watching television? What Horseshit!

Jul 28 01:35 AM

[R A F:]

The release yesterday by the SEC "SEC Takes Steps To Curtail Abusive Short Sales and Increase Market Transparency" is for real - and definitely contains "teeth" to begin reining in manipulation by abusive short sale tactics. I would advise all SIRI holders to get the entire wording within this release by going to the SEC website. There is no doubt in my mind that this more aggressive stance by the SEC will serve to make holders of short positions in SIRI more nervous, as this overall position remains extremely large (146 million shares as of 7/15). The heightened scrutiny of abusive downside manipulation by the SEC through naked short selling, and "flash trading", etc. - is all serving to make covering these short positions more difficult into the future.

Jul 28 08:07 AM

[Stockpickin...:]

this is the kind of postings we LOVE! Great disscussions back and forth!

Jul 28 08:14 AM

[Not Surious:]

What about the 100 to 1 reverse stock split coming. Why own now when you can pay the equivelant of .20 per share a month after the split.?


On Jul 27 02:33 PM relmar2003 wrote:

> No, timing is everything. Buy them on spikes, sell back on the dips.
> No spike right now, therefore its a fool trade. Good luck even getting
> .10 cents right now. But if some poor sucker puts up a .10 cent sell
> right now, the first spike will take it out, and .15 or .20 might
> have been possible. Wasted money. This is the bottom. No need to
> hedge a .40 cent stock. Unless you see BK in the next 6 months, which
> is impossible for 2 years, at least, and now probably never.

Jul 28 08:15 AM

[connorport:]

If you buy now and wait for the next run up and then sell covered calls on the stock at say .25 then you wont worry about a RS. At that point a RS will make you money. You will guarantee to be margined down to .15 a share of you buy at .40. If a RS doesn't happen then you are chasing the value upwards which is better. Selling covered calls will give you a fair amount of protection from any downside.


On Jul 28 08:15 AM Not Surious wrote:

> What about the 100 to 1 reverse stock split coming. Why own now
> when you can pay the equivelant of .20 per share a month after the
> split.?

Jul 28 10:20 AM

[connorport:]

I just told you how i play the options. I like to hedge what i own to protect myself not buy and sell straight options to make a couple cents. If you own the stock and sell covered calls then you make money going up or down if you pay attention to what you're doing.


On Jul 27 04:52 PM SIRI-Doom wrote:

> Well, yes.
> But I gota pay bills some how.....
> What was a great retierment is now a job to trade for a few pennies.
>
>
> The 2Q report is a monkey messing with the 3 sent spread. But, it
> is the same every Q. Past eleven months this has worked with price
> ajustment along the way.
>
> The larger problem is what to do the day before the 2Q report. Sell
> or hold?
>
> On Aug 6th with an 8 am report the trade queue will be full before
> the open with what ever already happend.

Jul 28 10:25 AM

[drevil6406:]

Not surious,

It would be nice if you knew what you were talking about before you posted. There is not going to be a 100 for 1 reverse split! Now go back to reading Green Eggs and Ham...your insolence is quite maddening!

Jul 28 11:40 AM

[relmar2003:]

Insolence. Love that word. Very appropriate too.

Jul 30 02:18 AM