Daily Stock Market Equity and Options Trading Commentary

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Tuesday, May 26, 2009

Time to get Sirius?

I have been debating whether or not to blog about this high risk high reward strategy, but tonight I've decided to share it. I would like to open a position on Sirius satellite radio and sell the rights to the shares for the December $1 strike for a dime a share. I have a limit in to buy the stock for 30 cents a share, and if I happen to get it I will put a limit order in to sell the rights for a dime a share for the December $1. In the meantime I will put a stop loss at 28 cents a share. If I can complete this buy/write I will be in SIRI for a discount of 33% a share, and have the chance of a 350% return on my investment (aka gamble).

I feel that with all the negative news lately about the auto industry, particularly GM, SIRI has been unjustly beaten. A chart below shows that SIRI has been beaten almost half as bad as GM, when SIRI has been rescued and GM is on the verge of bankruptcy. I just feel that SIRI is oversold here.

I will keep you posted whether or not I am able to get into this strategy, but my assumption is there will be significant selling pressure on SIRI within the next few days as GM's deadline approaches. I do not think I'll be able to sell the rights to my SIRI for a dime for a while, I do believe that after GM is over and done with their bankruptcy filing, buyers will return to SIRI stock.

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