Stephen Faulkner's  Instablog

**** Note, I am leaving this here for anyone who wishes to still do it, but be warned I have learned that option strikes will be adjusted down by $5.75 along with the stock on the ex dividend date, this results in a wash, no profit no loss as a result of the dividend.

http://www.theocc.com/webapps/infomemos?number=32731&date=201305

PDF file explaining.

This does not happen for all dividends or all special dividends, so the play may be valid for distributions by other companies. ****

Play for capturing USM's (USM) special dividend. Must purchase stock by close on 6/6

Dividend is $5.75 per share payable 6/24

Current share price $39.90 per.

Div payout 14.4% currently.

Play is to cover downside with options. Buy puts if / when you can find them at $40 strike. Currently OCT going for $2.90 is best deal, but that may change at any time. Special dividend has skewed options so there are slim pickings here.

For each 100 share purchase buy 1 put for $290.

Current cost of play $4280 per 100 share lot. Dividend payout on lot $575. If forced to exercise options to sell back receive $4000 per 100 shares.

Profit here is $4575 - $4280. $295 per 100 share lot or 6.9%

Play should be zero risk.

Disclosure: I am long USM.

Additional disclosure: I am long USM puts.

Some of you reading this article may experience a bit of deja vu. Don't worry, you're not crazy. I've written similar before.

Sirius XM's (SIRI) closing price on Friday of $3.48 should be looked at as an absolute steal. I hope some were able to take advantage of it.

Why?

Because the story has not changed much since I wrote that $2.97 was a steal on March 1st.

Let's review the key points I raised back then, and see how they compare now.

When it comes to Sirius XM lately, it seems the stock has followed a pattern of a sharp rise, followed by lengthy periods of consolidation. At the end of this consolidation the stock drops, finds support, and it's off to the races again. Predictable? Painfully so. It's not a case of hindsight being 20/20 here either. A little due diligence goes a long way.

Sound familiar? Take a look at Sirius XM's recent price activity. Now does it look familiar?

(click to enlarge)

It certainly should.

The facts of the situation will show that Sirius XM has been under demand from Liberty Media (LMCA) through all of 2012 and into 2013. Once Liberty closed on its forward contract in July, the stock never looked back to those $1.80 prices and left them far, far behind in rapid fashion. Why? Simple supply and demand, along with a little intelligence behind the strategic buys from Liberty served to raise the share price in a controlled, non-volatile fashion. That's not the only reason, though. Sirius XM as a company has performed quite well through 2012 and looks set to perform well into 2013.

Consider Sirius XM's Q1 conference call and the reaction at the end of April in the chart above. Obviously the company continues to perform in a fashion which is well received by the street.

Keeping a simple close eye on auto sales data, and headlines surrounding them, can give investors a glimpse of how Sirius XM may perform in an upcoming quarter. The company gains most of its new subscribers from new auto sales, and with February numbers coming in strong, Sirius XM looks ready to continue 2012's strength going forward.

As Spencer Osborne has been reporting, auto sales continue to come in strong and look poised to deliver numbers that should please investors of Sirius XM for the month of May.

Now, with Liberty in control, and with Sirius XM having instituted a $2 billion share repurchase program which will effectively retire those shares, I am expecting more of the same. By that I mean controlled, strategic buys which help to maintain the current long term trajectory of the share price.

And as we learned in the Q1 call, Sirius XM has already repurchased over 200 million shares within the plan, and those repurchases will be ongoing.

Nothing has changed. Because of this I believe investors need to keep their eye on the prize, and not get so nervous on the various short term share price gyrations arguably brought on by the daily market activity. It's hard to not notice that most equities took a significant haircut today, on what I feel is "no news" but rather a bit of end of month profit taking and rebalancing.

(click to enlarge)

In my opinion, it's nothing to worry about and such things should not distract one from their long term vision. This is the time you buy. This is not the time you cave in and sell in a panic.

As a final note, remember what I said on March 1st :

If you have been following all along, I hope you listened, and I think you will be quite happy soon if you bought on the recent dip. My near term target is $3.40 within the month of March. This is assuming the overall market is cooperative, and the doom and gloom of the sequester is brushed off.

I was a bit off. The share price did not hit $3.40 until April.

So, as some have been pointing out I may have been early on my call for $3.75. I agree. But I don't think anyone would be too upset if that share price is hit in June, a few weeks later.

Seize opportunity. Buy Sirius XM at $3.48. You'll be glad you did.

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 $2 and $2.50 calls. I will be selling part of my SIRI position to enter short term plays for a couple days between now and the first two weeks of June.

To all my readers who celebrate the Holiday, Happy Easter for you and your families! :)