moderator

Arbitrage Spread Between Sirius and XM “Abnormally High” - Stifel

Tyler, the fact that you even try to challenge what an experienced Wall Street trader has stated tells me that will try to explain away everything. The fact that your explanation is flawed confirms once again that you have no idea what you are talking about. Just accept the fact that you are wrong.

The example of the “arb play” that you list is NOT often used. How you can make such generalizations confirms you think you know more than you do. There is no typical arb play. Each one depends on the given conditions and probabilities of the various events. Anyone who says there is a typical arb play isn’t an arb trader. Between the two of us, I’d say I know much more about arbitrage than you. Where did you get your knowledge of arb strategies?? From online posts?

Once again, it’s very difficult for individual investors to find firms that will let you short $2 stocks. I would doubt you can get them from online brokers like E-Trade and Schwab. And if you can they sure won’t have much to hand out. Usually only the Wall Street brokers have them but you’ll find it very difficult to do even an unsolicited trade due to compliance. These are facts. Accept them.

So based on your extremely risky arb example, I guess you realize you are providing justification for shorting SIRI. I wonder how all of your SIRI cheerleaders will like that.

You assume that a short SIRI position will hedge a drop of both stocks. I will guarantee you that it will not. Both stocks will not drop the same amount. I will guarantee you that the strategy you list will end up losing money if both stocks go down. That is like thinking you will be completely protected from all downside if you buy puts. These strategies only provide partial protection. As a matter of fact, XM could drop and SIRI could rise to narrow the spread. Get your head on straight.

The arb example you list is extremely risky because you are doubling down in terms of the amount of leverage you are using. How you can even use this example and apply it to SIRI/XM for the people that read these posts is highly irresponsible.

Even a simple short is very risky. Unless you are a professional trader you should not be shorting..ever. It is obvious to me you have no real experience in arbitrage.

Don’t try to turn this around and make this an issue of whether the merger will pass. That is not the issue. I find your reliance on the merger as some sort of savior to be a bit funny. Even if the merger passes, these companies are going nowhere.

And I have read your previous posts. They are overwhelmingly biased and do not paint the full picture. You rarely make any discussion of risk and when you do, all you say is there is risk. Tyler, stick to your day job (whatever that might be) and I’ll sick to mine on Wall Street. I don’t write articles about surgery or engineering because I have not been trained for these careers. If I were to start writing about how I would perform brain surgery I’d be seen as a quack. Likewise, anyone who writes about investments without having been formally trained and having professional experience is a quack.

Arbitrage Spread Between Sirius and XM “Abnormally High” - Stifel

Tyler, I think it is obvious to anyone who read my comment that I in no way linked the arb play to you. What I did not do was mention that you too failed to recognize what this analyst missed. You believe that it will go through because you hope that it will. You have money on it. But the arb spread says otherwise.

As for my statements regarding the difficulty in shorting a $2 stock, this comes from my experience as a trader on Wall Street. I never said it could not be shorted. I said it is much more difficult to find shares. I know this from personal experience.

As far as the analyst, I could care less about the adjustments to his models. The simple fact is that he has a buy on XMSR based on this arb spread. That is the key point.

"If someone gains 25% from the arb spread and sells on merger approval, then there is no way that they lose their profits. A 25% return is a decent return, especially considering you can accomplish it without a huge cash outlay." ----- Let me spell it all out so that you understand. If you buy XMSR hoping to gain 25% from the spread, how can you be sure that both won't go down prior to a merger approval due to a continued sell off in the market? As well, remember that you have to hold the stock until the deal closes, which is usually long after approval.

Tyler, I think you really should reconsider whether you should continue posting on Seeking Alpha or anywhere else for that matter. You certainly have no idea what you are talking about and you have never managed money profesionally. Maybe you should focus more on reading rather than writing. It seems to me that you're only purpose here is to highlight any positive news you can find without critically assessing all of the facts and presenting an unbiased view. You may be popular to these SIRI/XM speculators, but based upon reading many posts from this and your previous articles, I would not consider them wise investors to say the least. But this is the company you keep. I suppose they are your peers. Good luck.

Arbitrage Spread Between Sirius and XM “Abnormally High” - Stifel

Tyler, did you not think that perhaps the “arbitrage spread” might be more of an indicator of the diminished likeliness of a merger as opposed to a “buying opportunity” for XMSR? Given the delays in approval thus far, I can assure you that’s how savvy arb traders would interpret it. The premise of his recommendation assumes the merger will go through and that is far from certain. The Stifel analyst is clearly a moron to not realize that arb spreads occur for a good reason.


The Devil’s advocate might counter that if the market has a bleak view of the merger being approved why did SIRI not fall as well? Answer: it is much harder to short a $2 stock. In many cases, it’s near impossible because it’s difficult to find firms that are willing to lend it when they break below $5.


Finally, even if the merger goes through and even if someone buys XMSR and gains the arb spread from the deal, the fact is that market risk remains very high and is likely to take both stocks down, wiping out any gains from this alleged arb spread. Market risk is key here. For an analyst to miss these points is highly irresponsible. But of course, analysts aren’t concerned with prudence since they cannot be sued. Those who have listened to analysts over the past several years have not fared well in either stock. And this is just another example of the danger in listening to these guys.


“Spring has made some sensible adjustments to his model, and seems to be cautious in his approach, using conservative assumptions and data points.” If he were being cautious he would not have a “Buy” on XMSR based upon on arb spread that indicates the merger is not particularly likely.

And some of you are too naïve to think that money can be so easily made. “Yea, the spread is huge and an analyst says it’s a great buy so I’ll buy it!”

Simply shocking.

A Critical Market Juncture (Again)

I think these points you mention have for the most part been factored into the market. At least for now, barring any unexpected event, the markets look to be ready to settle and maybe rally.

Goldman's Sirius Call: Solid Thesis, Poor Timing

cardman, I did not see anywhere where the author said to sell the stock now. He is saying to get out after a rebound. And if you read carefully, he talks about SIRI and XM needed 20 million subscribers from a 2004 report, so I'd say this means 20 million each.

After reading all the comments, I have to conclude the crybabies are long the stock. Stop crying and at least act like adults. I haven't seen any intelligent responses, just a bunch of crying. Stathis basically implies that inexperienced, unknowledgable people bought this stock. After reading the comments, I must say I agree.

Growth is limited when you are charging $13/month, shelling out millions to Stern and Execs. What happens if they reach 60 million subs? Do you really think they could ever go past this? Its all about earnings growth and a $13 cost wont get you there. I agree with the author. The business model is weak. Internet radio will be a big problem.