Shorts Continue to Make a Killing on Sirius XM's Stock

Jun.10.11 | About: Sirius XM (SIRI)

I’m going to cut to the chase here. Sirius XM (NASDAQ:SIRI) shorts have made a killing shorting the stock and there is no sign of it slowing down. As I said previously the crime rate should be on the rise and longs need to get used to it.

Now that I have that off my chest, let’s get down to business and continue our extended series of dismissing more improvable theories about short losses -- better known as myths. As many of you know, I am now long Sirius, but I need to admit point blank that I wish I would have held my short position for a couple of more weeks. I am now long the stock with an average cost basis of $2.10 from a purchases made at three separate intervals. But today I am kicking myself now that it has dropped below $2, which caused me to ask earlier this week “what is wrong with Sirius?”

You thought it was just an article title, but the other day I was really asking this very question angrily; though I left out two words between “what and is." I posed this question while holding an ax as I chopped wood in my back yard. Do you know when something get’s under your skin to the level where you develop an appetite for destruction? Well of course you do if you have been a Sirius shareholder for longer than two years. The stock just does not cooperate and refuses to abide with logic. Nobody has played this better than Sirius shorts.

Those of you who don’t like records or CDs that skip ought to stop reading immediately because you are about to read a repeated occurrence. Yesterday, Nasdaq released its bi-monthly short interest report and (you guessed it) Sirius’ short interest has once again risen for the seventh consecutive reporting period. What is remarkable about this is that this in of itself is a phenomenon according to many Sirius longs. Do you remember Joe Dimagio’s 56 game hitting streak? If you are not old enough to have witnessed that (neither am I), how about tuning in just to watch Tiger Woods making the cut on a particular tournament to continue his streak of 142 PGA cuts made? Sirius’ streak of rising short interest has now reached that status. It is now something that I actually look forward to just to see how high and how strong the sentiment against the stock can go.

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Short Interest 5-31.PNGClick to enlarge

The chart above tells a glaring story. There are currently 317 million shares being shorted on Sirius – representing an increase of 9.36% from two weeks ago with slightly over two days to cover.

Allow me to digress a little bit for those who are unfamiliar, short selling is simply selling a stock one does not own in anticipation that the stock price will fall. Contrary to what you might have heard, a short seller does not make the price of a stock go down; frankly that is just not possible nor should those who short stocks be considered the scum of the earth for utilizing a legal function of our market. Keeping up to date with how many people are selling short a stock, or in this case Sirius, is a very useful indicator (in my opinion) to gauge the sentiment on the stock. One of the key metrics investors hone in on when looking at this data is the short interest which is the total number of shares sold short that are still active and not yet closed out.

The fact that one has the ability to short sell a stock should not come as a surprise. I mean why should it? Stock prices are constantly rising and falling. So naturally there are firms whose sole purpose is to research deteriorating companies that are prime short-selling candidates. These firms go over financial statements looking for weaknesses that the market may not have discounted yet or a company that is simply overvalued. So clearly, there is a reason for the continued rise in this negative sentiment on Sirius. Astute investors will be better served to try to figure exactly what that is rather than continue fighting what the data has been saying for the past several months.

Can we finally put to rest once and for all that the shorts are losing?

I don’t think I’ve ever spoken to a Sirius short ( I know several) who gets excited and proclaims “longs are losing," but I can’t blink my eyes 10 times without a Sirius long exalting how “shorts are losing." It is truly remarkable what one discovers when contrasting priorities of both sides. As I have pointed out several times both longs and shorts have done quite well with Sirius over the past two years, but to some, saying this was somehow offensive.

It seems it is not enough sometimes that Sirius’ stock goes up, and for some it is equally important to litter message boards and article comments with “sticking it to the shorts," something that has become very old if not very sad. It reminds me of when I was in high school to witness the marching band trumpeters “stick it” to the members of the glee club as if either side was somehow “cool." Speaking of lame, the argument used by some Sirius longs who want to continue to assert the shorts are losing when the stock is going up and they are still losing when the stock goes down has to end now.


While some companies often get criticized for their “funny accounting," I think many Sirius longs deserve the label of utilizing “funny math” when coming to the conclusion that only longs have profited off this stock. In that same manner, to profit, one has to sell, something that many longs have claimed they will never do. I am a realist. My approach has rubbed many longs the wrong way, but investors need to start being honest with their market views and not underestimate the prowess of many of its participants.

As I’ve said before I am now long the stock and I feel Sirius will recover from its current lows that it has seen this week. The fundamentals continue to improve and I suspect that Sirius management will re-up guidance to propel the stock upward. But in the meantime, Sirius will continue to move along with the market and succumb to any macro environment concerns. But for the long term the stock is an absolute buy at this level; the shorts have made enough money.

Disclosure: I am long SIRI.