Sirius's Short Story

When a stock is down, and trading like the SDARS equities have been, the “shorts” always seem to become a popular subject. People speak of market manipulation, and seem to run off on a tangent that those that are short are the source of all of the problems that has an equity on the down side.

With this merger, there are many reasons to short. While shorting equities is something that I personally am not prone to do, I do understand the concept and the market. I simply make a choice not to short very often. Specific to the merger, there is an arbitrage play that potentially has a lot of people shorting Sirius (SIRI). The strategy is to go long XM (XMSR) and short Sirius (this strategy requires that the merger pass). If an investor were to do this, they will basically lock in the arbitrage spread upon the merge.

With the Department of Justice already having issued their decision, it is almost a foregone conclusion that the FCC will at some point follow suit. Thus, there are many who like the guaranteed spread, and short Sirius while going long XM.

Another short strategy that has existed for quite some time comes from those with convertible shares. They short the stock to lock in the spread on their convertible shares. Most convertible shares are held by institutions.

Others simply short the stock because it is an easy play when the equities are trading in a channel that carries a virtual cap until the merger decision happens, and the companies give some sort of guidance. Equities that are locked into ranges minimize the risk on the short side. When they get to the bottom of the channel, the shorts cover.

Sirius satellite Radio has been on the REG SHO list lately, and some people express concern over this. In simple terms, there is a failure to deliver the shares that have been sold short. The short investor is “naked” because he sold shares that really “in theory” do not exist. A short sells shares to another investor that buys them. Those shares are “borrowed” by the Broker from another account and then sold to the buyer. The problem arises when the brokerage house does not have any shares to borrow. When this happens, it is termed a failure to deliver. If there are too many failures to deliver, the equity gets placed on the REG SHO list.

Not all of this short discussion leads to the next thought that often happens when the subject of shorts arises. The short squeeze. While many think that a high level of shorts will necessitate a short squeeze, this is not the case. Yes, to a certain extent, a small short squeeze can happen, but in my opinion, it is not very likely in the current situation with Sirius. Sirius currently sits below the 5, 10, 20, 50, 100 and 200 day moving average. This means that, on average, people that have bought this equity over the past 200 days are down. The longer people are down in an equity, the more likely they are to accept a break even proposition. The 200 day moving average sits at about $3.30. On a technical analysis side, there are several resistance points standing in the way of a short squeeze. The strongest are at $2.90 and $3.30.

If those that are in the equity feel a stronger and stronger desire to simply break even, there will be plenty of shares on the market that the shorts can use to cover. By definition, a short squeeze needs to have a scarcity of sellers to be effective. The real effective point of a short squeeze for Sirius, in my opinion, is between current prices to just under the $4.00 price range. At anything above $3.50, tired longs will could well be willing sellers, and once those shares hit the boards, the short squeeze will taper off. Thus, it is my opinion that those hoping to see a concerted run (above $4 and towards $5) fueled by shorts scrambling to cover will not be very likely to happen. Simply stated, too much time has passed in this merger process. Had the DOJ ruled last November, and an FCC decision was expected in December, the short squeeze could have had much more potential.

Right now, shorts have a few safety nets in place. An equity in a channel, two strong resistance points, no announcement by the FCC, and longs that are battle fatigued. A merger announcement will take away some of that safety, and a pop on the news is expected. If the street feels that a decision is 1 to 2 weeks away, the shorts will have already begun covering next week, and until that FCC announcement happens, they are fairly insulated from the equity running away on them.

Time on a merger decision is likely quite soon. This will have shorts considering when to lock in their profits, but with all of those safety nets in place, they can still have a measure of confidence. At this point, they are trying to call the bottom, and realistically, the bottom is quite near to current levels.

For those that think the merger will solve the short situation… there will be short traders who will also try to call the top of the pop on an FCC announcement, and the cycle can start again. The solution is solid company performance, and a clear demonstration the profits are happening sooner rather than later.

Some people are not fans of technical analysis, but one thing is certain. The equities have many investors who have been locked into an equity position that has had a ceiling for so long that it becomes hard to imagine that ceiling going away. These equities are trading on perceptions more now than ever before.

Position - Long Sirius, Long XM

Comments

[tiger]

Not always the case. If something good happens with this stock and the price starts to move up, there can be all kind of scenarios emerging.
It is always a question of supply and demand. People will not give the stock away because they have seen it down for a long time. If this stock becomes desirable, it will be a nightmare for the shorts.
(Is there a chance of XM being halted for the transaction to go through? This is a factor also!)

[captwarbucks]

I can see your scenerio happening short term.After short term investors that have been waiting to get even sell off, let's say around $3.30, that also will be the point where true longs will wait for good news. Also with the FCC approval out of the way,more investors should move in when the price levels out. All that will be needed for a rapid rise then or a short squeeze would be one bit of news like some type of partnership or business with someone like Apple or Google. Just like xm hooking up with Blackberry, I'm sure there are many companies that are waiting to see how the merger works out and would look at opportunities that sat radio could bring to there business.

[User 168418]

TYLER..........THANK YOU FOR BREAKING IT DOWN ON THE SHORT SIDE. MY FEELING IS A 33% - 40% POP ON GOOD NEWS OF THE MERGER FROM FCC THIS WILL TAKE THE STOCK BACK TO $3.50 A SHARE RANGE. THEN ITS UP UP AND WAY

[D&S Finacial]

I am not sure why no one is talking about what Sirius is going to do after the merger. They are starting to move into the TV end of the car market with three kids channels currently available for their customers. What happens when they expand out to more channels and then move down the sports channel mode. I dont know the guy who would not love to sit in the back while his better half drives and watch a sports event. Then this stock will really soar.

[cos1000]

Tyler, ....Thank you for taking the time to provide a great incite into the minds of the "Short" players that most of us see as the "Boogey Men" in the closet of our investments.

As most Investors would agree, finding stocks with Business Models that will prosper is hard enough. Finding start up companies that eventually prosper is even harder. Short Sellers are contrarian to our every move Long in the stocks we pick.

Sirius and XM, with this extended merger delay, are prime pickings for the Shorts. That's why they, and analysts who side with them, have become the target of investor dismay. The Shorts invest in company failings, and the Long's invest in our selected company's success. This is why most of us rooting for our company's financial success, and in turn our own, don't Short Stocks. Its hard to see loosing the game as winning, or something like that...

Tyler, given your understanding of the short play, I would be very interested in hearing your thoughts on the SEC's removal of the "Up Tick" rule that occurred in mid 2007. Do you think it's reinstatement would help stabilize markets or individual stocks in times of uncertainty?

[Tyler Savery]

cos....

The uptick rule had its place, and perhaps still does. Whether or not the rule exists does not really matter. Those that want to short will be able to do so with or without the rule. Getting an uptick is quite easy for all of these players. The elimination of the rule simply made the game easier to play. In point of fact, it could be argued that the uptick rule actually enabled traders to short more stock without the market noticing as quickly.

Now, if the elimination of the uptick rule were in theory to result in freeing up regulator time so that they could more strongly enforce other rules, then it made sense. However, this is our government, and that will not really happen. Thus, the game is easier, and retail investors have lost a safety net (even as small as it was).

My opinion is that I would rather have the uptick rule than not. The main reason being I feel that I got little in return for its removal.

[kennyk]

It's time every one email FCC that it's time to either OK the merger or say No and Get it overwith IT's TIME with SIRI and XM

[cos1000]

Tyler, Thanks for taking the time to respond. I have heard that the rule helped stocks that were being "raided" by Hedge Funds during bad news cycles causing the stocks to become way over done on the down side, ultimately hurting the small investor and the company.

I am for any rule that protects the small investor without hurting the company in doing business. As you might interpret from my posting above, I believe Shorts are predatory in nature. I know our system allows the practice, but its to much of a "Kick-em when their down" mentality for me.

[Wez]

Nice Tyler, you have reinforced my desire to hold my shares in Sirius beyond any short term noise. Hopefully Karmazin delivers.

[User 178786]

Thanks for your consistent voice of reason throughout the process of merger review and approval. With the DOJ approval in hand, I see no way the FCC can turn it down after taking so long to rule.

I believe SIRI has bottomed out below $2.50. It feels like playing blackjack when you've got 11 and the dealer is showing 6. It's not a sure thing, but the odds favor a 20% upside in less than a month.

[31 October]

Tyler is correct in assuming that people who have been locked in for months and years will get out ASAP, causing a ceiling. It is illogical to assume that the stock will rocket to infinity, when there will be tremendous merger costs and technology differences. To support his theory of people waiting to get out, I paste this post from Google. And this is just one of many. Check blogs on fool, yahoo, etc., and you will see that there will be selling.
Tues, Apr 15 2008 3:50 pm
Email: [e-mail]
...I sit here like a Jackass at $3.68!
Just holding on for approval from the F cc to get the hell out of
Dodge!

[31 October]

...But the pent-up sellers do not negate the long-term potential of SIRI. I got out profitably @ 3.33 and am about to jump back in for a LT investment if it goes under 2.25.

[patrick b]

with siri bringing tv to the back seat if they can hook up with horse racing and Jai Alai i think the sky is the limit people love to gamble

[cos1000]

I believe back seat TV is currently only 3 channels of "Cartoon or Kiddie Entertainment". I also am not an engineer but I do believe video eats up much more bandwidth, spectrum, than digital audio. Does anyone know if there are restrictions on how far they can expand their video technically or if they can expand video under their pre or post merger license for SATRAD? At what point does video compete with Satellite TV or prices the subscription beyond profitability.

[verggreatness]

SIRIUS IS UP 4 CENTS TODAY.....LET'S THROW A PAAAARRRTTTEEEEEE........

[pain]

Well if the FCC who should also protect American companies and consumers did their job instead of protecting those who should be regulating (NAB and The 12 AG's). They could just pass the merger already and put so money back into people's hands simply cause they have the opportunity to. But the way this has been mishandled is heart breaking to investors and consumers who really care about the industry. They disguise there reasons for the hold up for the merger as if we were in Iraq trying to get something passed by Suddam. Everyday that passes they erode our investment. Who the hell are they protecting again? Up 4 cents and down six again! Thank the FCC and don't call them. They told me they can't help me. I said to them "you ain't kidding"!

[NotVerySmart]

I appreciate the detailed veiw and based upon the moves since the article it would seem very accurate. However with the recent jump of google (long) and apple (long) with only 2% shorts out, I think the shorts underestimate sideline investors waiting for good news. These investors will not care about averages etc. , when they see the pope himself blessing the stock, they will just buy. Never underestimate the power of blind faith and investor ignorance. So do your math shorts and play your games. The folks holding SIRI have held a long time for this merger (faith), they have watched the stock get crused with 10% out in shorts. Do you really think they will allow you to get out cheap? You should all learn a lesson from Google, Apple and others. We want a piece of you and were going to get it. What happens when demand skyrockets and there is no supply? Shorts get cooked. Here comes the pain. Shorts are gonna pay. :-)

[NotVerySmart]

Oh yea Long 45k SIRI and you shorts can't have any. Nanny-nanny nah-nah.

[Dauntless]

Not Very

Send the FCC a nastygram at [e-mail] and tell the to make a dammed decision.
Thanx!
Send several a day, it only take 30 seconds. Tell your friends.

Dauntless

On Apr 20 02:12 AM NotVerySmart wrote:

> I appreciate the detailed veiw and based upon the moves since the
> article it would seem very accurate. However with the recent jump
> of google (long) and apple (long) with only 2% shorts out, I think
> the shorts underestimate sideline investors waiting for good news.
> These investors will not care about averages etc. , when they see
> the pope himself blessing the stock, they will just buy. Never underestimate
> the power of blind faith and investor ignorance. So do your math
> shorts and play your games. The folks holding SIRI have held a long
> time for this merger (faith), they have watched the stock get crused
> with 10% out in shorts. Do you really think they will allow you to
> get out cheap? You should all learn a lesson from Google, Apple and
> others. We want a piece of you and were going to get it. What happens
> when demand skyrockets and there is no supply? Shorts get cooked.
> Here comes the pain. Shorts are gonna pay. :-)

[Dauntless]

SEND THE FCC A NASTY NOTE AT [e-mail]
MAKE A DECISION!!!

On Apr 17 02:07 PM cos1000 wrote:

> monk.... I too am long both Sirius and XM, since 2002 and a satisfied
> subscriber with three subscriptions. I was agreeing with you regarding
> analysts keeping investors confused. I was pointing out the ridiculousness
> of an analyst who uses a DCF based valuation method because of the
> vagueness of the variables at this point in this stocks "Life". Sorry
> that I couldn't better communicate my sarcasm with the use of that
> ridiculous formula.

[Dauntless]

SEND THE FCC A NASTY NOTE "MAKE A DAMMED DECISION!!"

[e-mail]

d.

On Apr 17 02:07 PM cos1000 wrote:

> monk.... I too am long both Sirius and XM, since 2002 and a satisfied
> subscriber with three subscriptions. I was agreeing with you regarding
> analysts keeping investors confused. I was pointing out the ridiculousness
> of an analyst who uses a DCF based valuation method because of the
> vagueness of the variables at this point in this stocks "Life". Sorry
> that I couldn't better communicate my sarcasm with the use of that
> ridiculous formula.

[Dauntless]

SEND THE FCC A NASTY NOTE TO "MAKE A DECISION!!!"

[e-mail]

Tell all your friends to also. About a dozen day. I am. They are slow learners.

Thanx!
Dauntless
On Apr 17 02:07 PM cos1000 wrote:

> monk.... I too am long both Sirius and XM, since 2002 and a satisfied
> subscriber with three subscriptions. I was agreeing with you regarding
> analysts keeping investors confused. I was pointing out the ridiculousness
> of an analyst who uses a DCF based valuation method because of the
> vagueness of the variables at this point in this stocks "Life". Sorry
> that I couldn't better communicate my sarcasm with the use of that
> ridiculous formula.

[Dauntless]

SEND THE FCC ABOUT A DOZEN MSGS A DAY, SHORT BUT TO THE POINT.

"MAKE A DAMMED DECISION!!"

If we all did they would start getting the message, even though they are slow learners.

Thanx!

Dauntless


On Apr 20 02:12 AM NotVerySmart wrote:

> I appreciate the detailed veiw and based upon the moves since the
> article it would seem very accurate. However with the recent jump
> of google (long) and apple (long) with only 2% shorts out, I think
> the shorts underestimate sideline investors waiting for good news.
> These investors will not care about averages etc. , when they see
> the pope himself blessing the stock, they will just buy. Never underestimate
> the power of blind faith and investor ignorance. So do your math
> shorts and play your games. The folks holding SIRI have held a long
> time for this merger (faith), they have watched the stock get crused
> with 10% out in shorts. Do you really think they will allow you to
> get out cheap? You should all learn a lesson from Google, Apple and
> others. We want a piece of you and were going to get it. What happens
> when demand skyrockets and there is no supply? Shorts get cooked.
> Here comes the pain. Shorts are gonna pay. :-)

[Dauntless]

send a msg to the FCC, maybe once an hour every day until they make a decision.
"Make a dammed decision!!"

Tell all the SIRI/XM holders you can find that we all are starting to do this.
There is absolutely no excuse for the bureaucratic bullshit they are pulling.

Thanx!

Dauntless


On Apr 17 01:05 PM pain wrote:

> Well if the FCC who should also protect American companies and consumers
> did their job instead of protecting those who should be regulating
> (NAB and The 12 AG's). They could just pass the merger already and
> put so money back into people's hands simply cause they have the
> opportunity to. But the way this has been mishandled is heart breaking
> to investors and consumers who really care about the industry. They
> disguise there reasons for the hold up for the merger as if we were
> in Iraq trying to get something passed by Suddam. Everyday that passes
> they erode our investment. Who the hell are they protecting again?
> Up 4 cents and down six again! Thank the FCC and don't call them.
> They told me they can't help me. I said to them "you ain't kidding"!

[Dauntless]

SEND A MSG TO THE FCC AT [e-mail]:

MAKE A DAMMED DECISION!!!
WE ARE ALL YELLING AT THE FCC BECAUSE THEY ARE ACTING LIKE MORONS.

Somebody tell Kramer..........

Thanx!

Dauntless


On Apr 17 11:46 AM monk26 wrote:

> BOOO-YAAA!!! Buy, buy, buy SIRI/XM!!! House of Pleasure is near!Merrill
> can't stop profits from coming our way, finally. And their ridiculous
> price targets and "sell" ratings are only geared to confuse you and
> keep the share price low so they can maximizeTHEIR profits. Throughout
> this whole ordeal big broker houses manipulated the prices of XM
> and SIRI shares by spewing their "analyst" ratings, and this is just
> the latest in a string of lies. Watch them merge and become a solid,
> healthy, financially vibrant company that delivers great content
> in a crowded digital infotanement market. And, by that time, all
> these broker houses will have made their profits in a big way, but
> WILL YOU??? Stop listening to the "analysts" and listen to your gut.
> Believe in YOURSELF, not some guy behind a desk who gets paid a big
> bonus at the end of the year to make money for his company. By the
> way, on the SAME DAY, another broker house, Miller Tabak & Co., issued
> a "Buy" rating for SIRI. Now go buy some shares, they are trading
> at a bargin, thanks to Merrill and the like.

[Slimsum]

I have 72,000 shares SIRI at cost basis $2.76 and am loving the waiting.