What Now For An Investor Long Sirius?

| About: Sirius XM (SIRI)
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There is always a great debate about the stock we all have either come to love or hate: Sirius (NASDAQ:SIRI). There seems to be very little leeway on it - either you are a raging bull, or a cuddly bear when it comes to it. There seems to be very little middle ground.

I for one do believe in the concept and business model to a degree. I see them constantly improving their financial metrics, and believe (with a little help through a solid partnership or takeover) they could become a more dynamic company and leave behind the days of being a single-digit stock and rise up and become an even bigger player.

Today's article is not about the pros and cons of the stock, though. There are many articles and opinions voiced both for and against it. I am here to discuss what you can do if you have "drawn your line in the sand" and are long (as I am) on Sirius and provide a few ideas on it.

Buy more: As one of my good friends would say to a comment like this, "Thank you, Captain Obvious." Of course if you are bull on a stock, the simplest way to show that is to purchase more shares in it. But not everyone is looking to do that, and if you are, what price point should you buy in at?

Click to enlarge.

As you can see for YTD 2012, Sirius has been mainly in the $2.03 to $2.18 range. That is not a huge sample to look at, both in time and price, but is a general idea of what the stock has typically done. So if you are going to increase (or start) a position, you need to determine just where you need to penetrate price-wise. The bad news is, the average range on a daily basis is only about 6 cents so you need to buy in at the correct time if this trend continues and there is little room to maneuver. Which opens up another idea...

Options for treading water: Many of us longs are frustrated with the stagnant stock price. I for one believed this stock would be sitting in the $2.40-$2.60 range by early this year. Though that can still come to fruition, each passing day of "up a penny, down a penny" makes that seem less than likely in the short term.

A few days ago, I wrote a part one and a part two article regarding how to use covered calls to your advantage if you find yourself in this situation and are unhappy about it. Just because our stock is bouncing slightly up and down as if it were a tiny yo-yo, does not mean we have to like it nor do nothing about it. If the share price will not grow as fast as we would like it to, then we can take matters into our own hands.

Liberty for all: If you truly believe Sirius is a target for a takeover (which may or may not be a good thing) the prime candidate for such a move would be Liberty (LMCA). Thanks to the sweetheart deal they got to bail Sirius out a few years back, own 40% preferred shares of the stock already. As "Sir Larry" would say, "You're (they are) getting a free ride on my coattails, mate!"

We know Mr. Malone is a huge fan of paying little or no tax with regards to businesses he is involved with, and SIRI has NOL's to last a lifetime. We also (more importantly) know that effective in March 2012, Liberty has less restrictions on acquiring a majority stake in Sirius. Cameron wrote a great article describing this back in last March. That being said, starting or increasing a position in Liberty could be an option for you as well. If Liberty were to increase it's stake to 51%, they could swap your Siri shares to become LMCA anyhow in a number of ways including a Reverse Morris Trust.

Let's also not forget that our buddy in Omaha opened a 1.7 million stake in Liberty as well, frankly I like to follow anyone who's fund has averaged a 20% return over the course of it's lifetime! Berkshire (NYSE:BRK.A) seems to usually be headed in the right direction.

Being involved on either side of this stock certainly has shrunk our lifespan by at least a few months. It is frustrating for bulls and bears alike, but you can use the stagnant price to your advantage. I personally have taken the covered call approach I spoke about earlier, but that does not mean it is the correct way for all of us to go. Either way, I see an interesting next 30-60 days for this stock, hope you enjoy the ride!

Disclosure: I am long SIRI.

Additional disclosure: I may initiate a position in LMCA via options or shares in the next 72 hours.