Tuesday, November 21, 2006


Here's a look at the 100 Day historical volatility for Sirius and XM over the last year. Historical Volatility (HV) is a statistical measure of share price fluctuation. A high HV indicates a higher probability of price swings. It say nothing about the direction of the price swings.

From the chart below, one can see that the volatility of the two satcasters was in the same range for the first part of the year, both gently increasing. Then, around the end of July, the two started to separate, with XM becoming far more volatile and Sirius becoming decreasingly volatile.

This is in sharp contrast to the previous year (see chart below), where Sirius started out much more volatile than XM until about mid-year, when they both starting trending downward. Towards the end of 2005, the volatility leveled out and then started a gentle trend upward for 2006.

What does it all mean? It means that XM is becoming more speculative and that one might anticipate greater price swings relative to Sirius--up or down. Sirius, OTOH, is becoming more range bound.

The 100 day HV is over a relatively long span, but one sees a similar pattern in the 30 HV. XM is trading in the low to mid 70's, while Sirius is trading in the mid to upper 30's.

There is definitely and unmistakingly a separation developing between the two. Even though XM has appreciated more that Sirius in recent times, it would be wrong to conclude from the volatility that this trend with continue. Remember, volatility says nothing about the direction. Quite the contrary. A stock that rises or declines at a steady rate with have a low HV.

The higher volatility for XM is more like the Chinese curse, "May you live an interesting life."

The website iVolatility has charts for both XM and Sirius that show the Historical Volatility (HV) and the Implied Volatility (IV). The IV is extrapolated from the prices that traders are willing to pay for options. It is a measure of the perceived volatility of a share price, whereas the HV is the actual volatility of the share price. The HV is a measure of the past; the IV is the present perception.

XM's HV is currently trading significantly above its IV. It could means that options are selling too cheap or that the market expects XM to become less volatile in the future. The 10 day HV suggest that the latter might be what's happening. In the case for XM, the HV and IV tend to cross ever so often.

For Sirius, its HV is below its IV. That's the case most of the time with Sirius. Options generally trade at a premium. It is probably related to the number of shares available and the low price of the shares which might lead to exuberance. It is still a measure of how the market perceives the volatility of the share price and could also mean that the market expects to see more fluctuation is the share price than it is currently exhibiting.

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