Daily Stock Market Equity and Options Trading Commentary

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Saturday, April 18, 2009

Saturday Speculation: Are You Sirius? As in the Satellite Radio

First and foremost I don't like Sirius and don't think anyone should own it unless they have the money to lose. I own 40,000 shares that I'm in for virtually free. When Sirius was talking about going bankrupt I decided to buy in at a nickel which ran me $2167 (.054 cents a share + commissions). I did not think they were going to file chapter 11 with the speculation talk being that their debt was about to be purchased (I definitely got lucky)... Sure enough Sirius is still fighting for their life, and in the mean time has risen 1000%... I believe it was when the stock was at about 15 cents when I wrote out every single share I own for a nickel a share ($5 per contract) for the $2.50 January 2010 strike. So after commissions I am only in for $474 ($7 for options trade + 400 contracts X .75 + $7 for stock trade + .004 cents a share cost). I think Sirius can get to $1 just based on the chart alone, not to mention that the have a "Sirius" following- don't believe me go say something negative about SIRI in the Google Finance message boards! I cringe when I talk about SIRI because I am not fond of penny stocks, but because I listen to CNBC and Bloomberg constantly on my Sirius Satellite radio I know how great their product is compared to terrestrial radio. Now because the stock has moved so much in the past 2 months (1000%), I have become both cautious and curious.

By looking at the chart below, you can see there was resistance at around 45 cents (I have drawn lines on each resistance point), and once SIRI broke through that it was a quick pop up to 53 cents and closed at 50 cents. It is key to hold above this level and not break back down below it. The next resistance is at the .58 level which if we can break above that it might be a quick test to .68 before we settle down (resistance levels are close so it could move through both easily in just one trading session). Once again if it breaks through 58 cents we'll need to hold above it, and eventually break through the .68 level. Finally as we can see after the 68 cents level there is no resistance in sight until about $1.05 (stocks rise just as they do fall, and this stock fell fast!). In theory if this stock speeds through the .68 level we could see buying just on the technical side and it could easily push us up above $1 (click on the chart for a larger more clear picture).

I looked at the short interest and it is 4.79% which isn't as high as I expected it to be. However if shorts get spooked, even a quarter of the shorts covering will carry this stock up. Both types of this buying (technical buying, and short covering) will cause a higher Alpha in the stock, and make it look more attractive. Not to mention any changes in the uptick rule will greatly benefit this stock. I think a key report to watch for is their earnings on May 11, 2009 and see what the company has to say to give investors confidence.

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