Wednesday, April 25, 2007

Options On XM Geeting Attention

April 25, 2007

From Briefing.com

XMSR calls are seeing interest ahead of tomorrow's (4/26) before the open. Seeing the most action are the May 12.5 calls (volume: 6960, open int: 4760, implied vol: ~57%, prev day implied vol: 50%) -- the Jul 12.5 calls are also seeing interest;

4/25/2007 01:54:00 PM

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  • Maybe you could explain what this is talking about, I don't have my encryption decoder ring with me today....

    By Anonymous DudeManCentral, at April 26, 2007 12:46 PM  

  • Sure.....

    A call option contract gives the holder the right to purchase 100 shares of stock at any point between when it was purchased and when it expired for a set price.

    By example if you were to buy the June $12.50 call option contract you would pay 40 cents per share or $40 for 1 contract (contract is a 100 share block).

    This gives you the right to buy those 100 shares at any point between now and the third Friday in June for an additional $12.50 per share....regardless of the price of the stock at the time. Thus, if XM were trading at $15 on the stock market, you will be allowed to buy those shares for $12.50.

    The person who sold you that right gets to keep the 40 cents no matter what. When the contract expires you no longer have any rights to the shares, and they revert back to the owner free and clear.

    Now, once you buy a contract, you can sell it as well. If the price of the stock begins to climb, the value of your option contract increases. Thus, if XM were to go up, the value of your contract may go from the 40 cents you bought it at to 50 cents.

    Basically options allow you to control (no voting power) a large number of shares for a set amount of time.

    Options interest is seen as an indicator by many. The fact that there are a substantial number of people expressing an interest in XM at $12.50 in June means that there is potentially some upside in the equity.

    By Blogger SSG, at April 26, 2007 1:35 PM  

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