I have written more than 50 articles on SiriusXM (NASDAQ:SIRI). Some of these were detailed looks at subscriber metrics and growth while others explored the likelihood of a takeover by Liberty Media (LMCA) or the implications of share buybacks. Along the way the views expressed were considered bullish or bearish and sometimes both characterizations appeared in comments on the same article.
I recognize that many of my articles focus on the negative aspects of the company's business and the poor performance of management. I am concerned about the large number of subscribers that terminate their service each and every day. I am concerned about the fact that more than half the customers that get a free trial don't bother to become subscribers. I am concerned about the 4 million self-pay subscribers that will cancel the service this year. I am concerned about the cost to acquire new subscribers, the poor marketing, and late product deliveries and announcements... I worry a lot about this particular investment.
I write about the negative aspects of the company far more often than the positive aspects because my experience in investing has taught me that negative surprises are very damaging to my portfolio. Companies I have owned that miss numbers -- their own guidance, analysts' forecasts or even whisper numbers -- have typically declined by a greater percentage than the percentage increase that would be rewarded by beating those same numbers.
To be clear, I consider myself to be bullish on the prospects of Sirius the company as well as Sirius the stock. I consider the stock to be moderately speculative with an expectation of an above average return for taking on above average risk. I also expect the company to be purchased by Liberty Media and have expressed this view since last summer.
Seeking Alpha requires contributors to disclose their holdings at the time an article is submitted along with anticipated trades in the next 72 hours. This disclosure appears at the bottom of each article, and my disclosures also note that I sell covered calls against large portions of my Sirius holdings. Because of these disclosures, I have found it interesting that some members of Seeking Alpha consistently view my position as bearish and think that I must be shorting the stock. It also seems strange that anyone thinks someone that is long 35-40 thousand shares is a bear.
On a recent article, Seeking Alpha member thirtyfour wrote:
Anyone else seeing a pattern at Seeking Alpha? It looks as if SA staff set us up with what appears as pro Sirius writer, then over a period of time he becomes more and more negative concerning the company. First he's pumping Sirius every day, then he's a little bit Spenser, never really happy enough.
After concluding a lengthy response laying out most of my positions and investing style to thirtyfour with:
As to changing my position, go back and look at the first three articles I wrote. I remain concerned about the same issues and I was considered to be bearish by some at that point.
Wouldn't it more prudent and honest to disclose that your long position is just a little misleading? How about giving us a little clarity on how far the share price has to drop before you actually start losing money. Many here fail to understand the complexity of your style of trading, me for one. If you stand to lose little when and if the share price falls, you wouldn't fear being a little negative suddenly.
The disclosure on the article where thirtyfour commented was as follows:
Disclosure: I am long SIRI. I also have $2 and $2.50 January 2013 covered calls against some of my Sirius positions. I may open $3 January 2013 covered calls and/or initiate (or close) a buy stock/sell option position in Sirius at any time.
I never considered my trading style particularly complex or my disclosures insufficient. In fact, I have frequently described my trades in detail in articles on this site. I essentially maintain long positions on shares and often sell covered calls against my long positions. I will also day trade positions when I think there is an opportunity to take advantage of the volatility. However, if thirtyfour thought the style was complex, I expect that there are others that could have the same issue, and it could be prudent to again explain how I invest in Sirius.
I don't look at my Sirius transactions in the aggregate. At least not in the sense that others who write comments on Sirius articles appear to view their holdings. Many apparently "buy on the dips" or have "averaged down" and state their average cost is now $X. My basic investment style is to treat each transaction separately. If I open a position and buy shares to trade and subsequently sell those shares at a profit (or loss), I don't reduce (or increase) the average cost basis for my other holdings.
My largest position in Sirius consists of 30,000 shares that are uncovered at the current time. I have sold calls against these shares many times and will continue to do so. I expect to sell $3 January 2013 covered calls against this position at some point in March. The logic behind this trade is that I do not think the share price will reach $3 plus any premium I pocket on the sale before the options expire. Even if Liberty makes a move to take a majority position in Sirius, I do not expect them to overpay for the acquisition or the shares to move above the $3 strike price. And, even if I am wrong, I will be satisfied with the yield on that investment.
In a partial answer to thirtyfour's question, I would not be happy if the share price declines from the current price because I would suffer a decline in the value of the long portion of the asset. If at some point the price climbs above $3, the situation is a bit different. I would have no additional "paper" profits because I would "only" receive $3 for my shares. Again, let me emphasize: at any price below $3, I will benefit from a rise in the price of the shares!
I have executed covered call transactions in the past several months. I wrote an article on September 9, 2011 titled A Sirius Option For Generating Return describing this type of conservative opportunity. From that article:
By purchasing the shares for $1.71 [the price of the shares at the time] and simultaneously selling the $2 January 2013 option for $0.40 (the current ask on the shares and the current bid on the option) there is a net cash outlay, excluding commissions, of $1.32 per share. If the shares get called as I expect, the return is slightly more than 50% over the next 16 months.
In the disclosure section of that article I noted that I was likely to execute the described transaction. Subsequently, on September 12th I wrote the following comment under that article:
In the interests of full disclosure, this morning I executed the combination trade in this article, buying SIRI and simultaneously selling the $2 January 2013 call for a net cost of $1.30. The stock was purchased for $1.69 and the call was sold for $0.39. My current intention is to just forget about it and wait for the shares to be called away.
Is that sufficient disclosure? There's more. I had several positions in various family accounts where I had sold $2 January 2012 covered calls. When these were called away, I wrote another article on January 24th titled SiriusXM: A Conservative Investment? letting everyone know that I chose not to roll the options forward, that the options had been exercised, and the shares sold. I described in detail another set of trades I intended to execute, this time in-the-money covered calls:
With the shares trading at $2.06 Asked and the options trading at $0.36 Bid / $0.38 Asked, I entered a combination order to buy the shares and simultaneously sell the calls at a net debit of $1.69 per share. (This is essentially placing simultaneous limit orders and is a single transaction). If all goes as expected, the shares will be gone next January for $2 per share, a return of more than 18%, excluding commissions. The math is simple:
$2.06 SIRI price - $0.37 option premium) = $1.69 Net Debit
($2 Sale Price - $1.69 Net Debit) = $0.31 Capital Gain
$0.31 / $1.69 x 100% = 18.3%
I did not think of this as a particularly complex type of transaction. However, with respect to these particular shares, it is true that I am indifferent to a price movement in either direction while the shares trade above $2 since my profits are capped at an 18.3% gain. But, that is only for these particular shares. With regard to other positions where I have sold $2.50 calls or those positions that are currently uncovered, I am sensitive to current price movements.
Trades similar to these can still be made, although the recent run-up in the share price has made the risk/reward and the potential return far less attractive.
Bull or Bear?
So, are these the positions or trades of a bull or a bear? There are many that believe -- and have commented on my articles that deal with options -- that selling any call option is bearish. There are those that view any articles that highlight a perceived weakness as bashing the company. Others view articles about the logic of a takeover by Liberty as bearish, especially any that speculate it will happen at a price under $3 per share. And, there are those that view anyone promoting any long position in Sirius as pumping the stock. More importantly, how should disclosures be presented so that readers can understand the biases that an author brings along?
Sirius is a stock that elicits above average passions among investors that often results in Seeking Alpha members making accusations about authors. We are accused of being shorts trying to manipulate the market, pumpers, bashers, bulls or bears. We are accused of lying about our holdings and told we should not write about stocks unless we own them. Most authors will take these comments in stride, either choosing to ignore them or using it as an opportunity to clarify a position. I tend to go the latter route, often writing lengthy clarifications.
I continue to view Sirius as a speculative holding with above average risk and the potential for above average returns and often write covered calls to mitigate that risk. I have always considered myself bullish on the long term prospects of both the stock and the company.
Despite "hiding" behind a pseudonym and the image of a turkey vulture, my agenda is not hidden and I do not consider my disclosures to be misleading. My views and disclosures are open and honestly presented. I include anticipated trading actions, add a comment when a trade has been executed and am always offering additional explanations when requested. I never intend to mislead, and the disclosures should be sufficient.
Additional disclosure: I am long SIRI. I also have $2 and $2.50 January 2013 covered calls against some of my Sirius positions. I may open $3 January 2013 covered calls and/or initiate (or close) a buy stock/sell option position in Sirius at any time.