Bearish options bets on Sirius XM Holdings Inc. (NASDAQ:SIRI) have reached an unsustainable crescendo, and the stock might be shaping up for a big short-term rally soon.
So say the options experts at McMillan Analysis Corp., who today published a note that their computer generated Put-Call Ratio Buy Signal has been visually confirmed by SIRI’s chart (see below):
As you can see above, the put-call ratio has surged to yearly highs as of late. In essence, this means that bearish options bets on a volume basis are dwarfing those on the bullish side. This kind of imbalance typically ends with a sharp turn in the other direction, and in Sirius XM’s case, could mean a quick and steep rally the short term.
For more on put-call ratio and its value as a contrarian indicator, here’s McMillan’s explanation:
Put-call ratios are useful, sentiment-based, indicators. The put-call ratio is simply the volume of all puts that traded on a given day divided by the volume of calls that traded on that day. The ratio can be calculated for an individual stock, index, or futures underlying contract, or can be aggregated – for example, we often refer to the equity-only put-call ratio, which is the sum of all equity put options divided by all equity call options on any given day. Once the ratios are calculated, a moving average is generally used to smooth them out. We prefer the 21-day moving average for that purpose, although it is certainly acceptable to use moving averages of other lengths.
A surging put-call ratio is by no means a guarantee of an impending rally, but it is a historically reliable tool for investors to utilize when attempting to identify stocks that are due for short-term reversals. Thus, it pays to closely monitor SIRI’s share price over the next several sessions as a result.
Sirius XM Holdings Inc. shares were trading at $5.40 per share on Wednesday afternoon, up $0.14 (+2.66%). Year-to-date, SIRI has gained 21.85%, versus a 10.03% rise in the benchmark S&P 500 index during the same period.
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