Companies start to believe their own PR hype. Investors push a stock past logical limits. A company seems about to break down or break out. These are just a few things that can signal a stock with attitude. And... that attitude can be good or bad for the stock price, since attitude always catches up with reality. At least on Wall Street, that is.

As of 10:50 AM XM Satellite Radio (NASDAQ:XMSR) is up $1.74 (12.43%) to $15.72 extremely high volume. The stock hit a high of 16.36 earlier today. Investors are snapping of the stock on the announcement that the company has struck a deal to combine with Sirius Satellite (NASDAQ:SIRI). Investors seem less than concerned about the fact that Federal regulators warned that combining rivals Sirius Satellite and XM Satellite Radio will be a tough process, since there's already a provision barring both satellite radio licenses from being owned by the same company.

XM Satellite has been caught in a tight trading range between about $14 and $16 for a while and the technicals for the stock have been negative. This morning S&P upgraded XMSR from a 2 STAR (out of 5) sell rating to a 3 STAR hold rating. "Merger announcement with Sirius" was stated as the reason for the upgrade. Out of the 20 other analysts who cover the stock, nine give it a strong buy, two a moderate buy, and nine give the stock a hold. No moderate sell or strong sell ratings could be a plus for the stock.

XM Satellite's stock hit a high of $24.21 on April 7, 2006 then dropped to a low of $9.63 on July 27, 2006. The stock is now about 35% below its 52-week high. Could this merger be enough to push the stock back up past its previous high?

The combination of XMSR and SIRI probably looks good on paper, but can it get past considerable regulatory hurdles? This could drag on for quite some time as the FCC has little incentive to move quickly. The prospect of combining the services offered by both companies could be an added challenge. It is yet to be seen how this deal affects Howard Stern's legendary deal with SIRI. To top it off, if this deal is put together, investors may discover the satellite radio may not have the expected market size. Why else would these two companies combine? If the market is as big as they would have us believe there would be more than enough satellite subscribers to go around.

For a neutral to bearish hedged play on XMSR, I would consider an April bear-call credit spread above the $17.50 level. Expect the stock to drift down as the realities of this potential merger start to see the light of day.

Vic Schiller is an analyst with attitude at Investors Observer. DISCLOSURE: Mr. Schiller owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about.