A Sirius Squeeze

I love weird things. Whether it be food or stocks, they just catch my attention. One of the weird stocks I’ve been watching is $SIRI. As you can see, the price action here has been wild.

The story behind the price action is interesting. The idea many traders were going after was an arbitrage trade. Short sell $SIRI and go long $LSXMA. As I wrote about here, $LSXMA is a fascinating trade idea since it has a significant discount to NAV (aka it tracks $SIRI, but trades for 30%+ cheaper). Several large investors opened a position to take advantage of this gap by shorting $SIRI and going long $LSXMA. In theory, this takes advantage of the discount to NAV while also not making a bet on Sirius XM. High return (discount to NAV), no risk other than time (since $SIRI and $LSXMA should trade in unison).

It all makes so much sense, but the problem is that a lot of people were short $SIRI leading to a short squeeze. Even the “arbitrage” trades have risk.

What This All Means

I love when I see weird stuff like this happening. I’m not sure this means anything beyond this company has a small float. Yet, I continue to think that weird means an opportunity. Value investors have been chasing this discount to NAV for years now, why would now be different? I’ll remain on the sidelines until I can answer that.

Author: fatbabyfunds