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Risk Malaise Alert in Option Market: Sirius XM Holdings Inc Implied Price Swing Hits A Depressed Level




Sirius XM Holdings Inc (NASDAQ:SIRI) Risk Hits A Depressed Level

Date Published:

Risk Malaise Alert -- Not How You Might Think:
Before we dive into any analysis we simply note that Sirius XM Holdings Inc (NASDAQ:SIRI) risk is actually priced pretty low by the option market as of right now. We'll detail it below -- but that's the lede -- the option market is reflecting a sort of risk malaise, for now, an IV30 of 26.2% versus the IV30 of the S&P 500 at 8.68%. The annual high for Sirius XM Holdings Inc IV30 is 41.61% -- and we're below that level. The alert here is low vol.



One thing to note beyond the risk malaise alert, which we cover in the article, is that while implied volatility may be low, the real question that needs to be answered for option sellers is not if the implied vol is low, but rather if the realized volatility that is coming in the next 30 days will be lower than the option market is pricing.

To skip ahead of this risk alert and see if buying or selling options has been a winner in Sirius XM Holdings Inc, you can go here: Getting serious about option trading.

PREFACE
This is a proprietary risk rating and risk alert system that looks forward for the next month -- or really 30 days to be exact -- and that includes weekends. The system is based on multiple interactions of data points, many of which come directly from the option market for Sirius XM Holdings Inc (NASDAQ:SIRI) . The creator of this model is Capital Market Laboratories (CMLviz.com).


Option trading isn't about luck -- this four minute video will change your trading life forever: Option Trading and Truth

In the "Why This Matters" section at the end of this article on Sirius XM Holdings Inc we're going to take a step back and show in great specificity that there is actually a lot less "luck" in successful option trading than many people know. The whole concept of an "option trading expert" is vastly over complicated and we'll talk about how superior returns are earned.

But first, let's turn back to SIRI and the company's risk rating:

We also take a peek at the implied vol for the Consumer Discretionary ETF (XLY), our broad based proxy for SIRI.





SNAPSHOT SUMMARY
S&P 500 IV30     8.68%
Nasdaq 100 IV30     14.57%
XLY IV30     11.77%

SIRI HV 30     20.88%
SIRI Current IV30     26.2%
52 Week Low IV30     20.37%
52 Week High IV30     41.61%


The risk as reflected by the option market has hit a depressed level relative to the company's past. The option market reflects a 95% confidence interval stock price range of ($5.30, $6.00) within the next 30 calendar days.

While the option market risk rating is on the low side, we note that companies in this situation are still susceptible to sudden stock move risk, it's simply the probability of that large stock move is depressed. Buyers of options and volatility may find these prices more attractive than at other times.

SIRI OPTION MARKET RISK
The IV30® is the risk reflected by the option market in the stock price for the next 30 calendar days -- it's forward looking. Sirius XM Holdings Inc shows an IV30 of 26.2%, which is a depressed level for the company relative to its past.

The option market for SIRI has shown an IV30 annual low of 20.4% and an annual high of 41.6%, meaning that SIRI is at the 27% percentile right now. Here's a table of the data before we dig into the risk rating further.

SIRI
Current IV30    
SIRI
Low IV30    
SIRI
High IV30   
26.2% 20.4% 41.6%

The implied stock swing risk from the option market has created a range which is tighter in the next 30 calendar days for Sirius XM Holdings Inc (NASDAQ:SIRI) than it has been on average for the last year on average.
Further, if we look backwards, the stock has a realized 30-day historical volatility, called the HV30, of 20.88%.




We have an unusual situation now where the IV30 is depressed relative to the past, but even with that risk pricing, the option market reflects the likelihood of a greater stock movement in the next 30-days than the stock has realized in the last 30-days. Let's turn to a chart to see what's going on.
 
Note how much higher the forward looking stock swing price risk for Sirius XM Holdings Inc is priced (26.2%) compared to what happened just in the last 30-days (20.9%).

Sirius XM Holdings Inc Risk Rating
The SIRI risk rating is at 2, where the rating goes from one (the lowest risk) to five (the highest risk). The driving factors for the 2 rating are:

The IV30 is below the annual average.
The IV30 is below 30%.
The HV30 is below the annual average.
The HV30 is below 30%.
The IV30 is above the HV30.
The stock has moved just +1.8% over the last 3-months which does indicate some depressed risk.