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Wednesday, February 9, 2011

Sirius XM Radio

Sirius XM Radio (SIRI) is a stock you either love or you hate. A lot of early investors really got burned by SIRI and XM before they merged. Over the past year, it surge over 100% and now many people believe it is currently overvalued. However, future prospects for SIRI appear to be getting better. They have managed to clean up their balance sheet, improve their cash flow situation, and re-sign their most popular content for 5 more years at very reasonable prices. The have attracted the attention of institutional investors and maintained their listing on the NASDAQ. There are also a number of future catalyst that can drive this stock higher which can be read about here.

There are a few ways to begin investing in SIRI now and building a position to profit in the future. Below are three ways to invest in SIRI which should be considered:

1. Buy stock. It trades at 1.78 currently, 3 cents off its 52 week high.

2. Sell Jan 12 $2 puts. These currently trade for .57 or $57 per contract. If SIRI is below $2 on the third Friday of Jan 2012, you are obligated to by 100 shares for each contract sold. The net costs of the shares will be $1.43 or about 20% lower than today's price. If they are above $2, the contracts will expire worthless and you can keep any premiums received.

3. Create a synthetic long stock position. You would do this buy selling either the Jan 12 or 13 $2 puts and buying the Jan 12 or 13 $2 calls. By doing this, you can participate in any upside above $2 until the respective expiration date. If it is below $2 by the expiration date, you will still be obligated to buy the shares at $2.

Do your research as their is no shortage of opinions out there on SIRI. I plan on selling some 2012 $2 puts, as I think the shares will be above $2 by Jan 2012 but do not mind someone making me buy them at $1.43 a year from now as well. If the shares are put to you, you can always begin initiating covered call positions to lower your basis further.


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