XM Satellite Radio Holdings Inc. (NASDAQ: XMSR) is higher this morning as recent SEC filing shows that an XMSR director just purchased 270,000 shares of the company's stock. If you think this means that the company is high on their chances of a successful merger with Sirius (NASDAQ: SIRI), then now could be a good time to look at a bullish hedged trade on XMSR.

After hitting a one year high of $17.70 in January, the stock has slipped quite a bit, settling in just above the $10 mark with recent resistance around $12. XMSR opened this morning at $11.43. So far today the stock has hit a low of $11.37 and a high of $11.94. As of 11:05, XMSR is trading at $11.79, up $0.30 (2.6%). The chart for XMSR looks neutral and improving slightly, while S&P gives the stock a very negative 1 STARS (out of 5) strong sell rating.

For a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $10 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 11.1% return in just 2 months as long as XMSR is above $10 at October expiration. XM would have to fall by more than 15% before we would start to lose money.

XMSR hasn't been below $10 by more than a few cents at all in the past year and has shown support around $10.90 recently. This trade could be risky if the Sirius merger falls through, but even if that happens, that decision is not expected until early in 2008.

Brent Archer is an options analyst and writer at Investors Observer.

One of XM Satellite's (NASDAQ: XMSR) founders and current CEO, Hugh Panero, today announced he was leaving the company. The reason, many are saying, is that he would have lost his CEO title if the XM and Sirius (NASDAQ: SIRI) merger went through.

The confusing factor in this announcement is the fact that the merger still faces very significant regulatory scrutiny before it can go through and take effect. And the scary thing is, I think Panero was well aware of these regulatory issues -- everyone is.

The whole thing makes me wonder: did Panero leave for another, possibly negative, reason? I tend to believe so, and the market seemed to agree -- the stock fell more than 5% after the company made this announcement.

What do you think?

It may be Independence Day week, but it appears that there are a number of companies willing to sell their independence to the highest bidder.

• XM SATELLITE RADIO HOLDINGS INC (NASDAQ: XMSR)

Word is that there's more than one bid out for the satellite radio company. We know about the merger agreement with Sirius Satellite Radio Inc's (NASDAQ: SIRI), so who's the other party? Or, is there another party? Some are convinced it's just talk. No names are even floating around. But for XM to walk away from Sirius would cost them a $175M break-up fee. They'd have to really be serious about another offer to do that.


• BUILDING MATERIALS HOLDING CORPORATION (NYSE: BLG)

In May, Robert L .Chapman of Chapman Capital, the "activist investor", said Building Materials Holding Corp. should consider selling all or parts of itself. Then he upped his stake to 8.1% in the residential construction services provider. Now comes word that the company may have hired, or be in the process of hiring, a strategic advisor.

For those of you who just aren't sated by the daily one-hour program, the monthly magazine, occasional feature films and made-for-TV movies, and the radio content available at XM Satellite Radio (NASDAQ: XMSR), you'll be relieved to hear that a one-stop shop for all things Oprah is in the works.

Oprah Winfrey's privately held company, Harpo Inc., released a statement indicating that construction has started on a store carrying Oprah merchandise. The boutique will be located catty-corner from the Harpo Studios building in downtown Chicago and will be one story and 4,500 square feet. Many details, including an opening date, have yet to be worked out.

The queen of the entertainment world already sells some products through an online store. Oprah fans can pick up a $14 iPod cover with the Oprah logo, DVDs, and African apparel and artwork. The Chicago Sun-Times reports that these and other Oprah-related merchandise will also be available in the retail store. Know a co-worker or friend that's expecting? The $36 'O Baby' velour jogging suit could be the perfect gift.

Beth Gaston Moon is an analyst at Schaeffer's Investment Research.

XM Satellite Radio Holdings Inc. (NASDAQ: XMSR) opened at $10.67. So far today the stock has hit a low of $10.62 and a high of $10.90. As of 10:55, XMSR is trading at $10.89, up $0.28 (2.6%).

After hitting a one year high of $17.70 in January, the stock has stumbled down to near its year-lows over the past six months. The FCC issued a public notice Friday seeking comment from the public on the proposed merger between Sirius Satellite Radio (NASDAQ: SIRI) and XM Satellite Radio Holdings. Given that the FCC generally tries to finish its review of mergers within 180 days, this means that there could be a potential decision from the FCC by the end of 2007. Recent technical indicators for XMSR have been neutral and improving, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bullish hedged play on this stock, I would consider a July bull-put credit spread below the $10 range. XMSR hasn't been below $10 since October and has shown support around $10.40 recently. This trade could be risky if the Sirius merger gets the ax, but with today's news, that kind of announcement shouldn't happen until well after July expiration.

Brent Archer is an options analyst and writer at Investors Observer. DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls a position in XMSR or SIRI.

One stock this Fly has been plainly wrong in recommending has been Sirius Satellite Radio Inc (NASDAQ: SIRI). After dropping from $8 per share down to $4, it looked worthwhile bottoming fishing in this still emerging industry. However, while recommending for investors to jump into this stock, the decline did not stop as subscriber growth targets were missed for both Sirius and its main rival XM Satellite Radio Holdings Inc (NASDAQ: XMSR).

However, this week, it appears the negative view associated with this industry may be subsiding. Sirius announced yesterday that Morgan Stanley committed a $250 million term loan for the Howard Stern broadcaster. Proceeds will be used for general corporate purposes.

This follows an upgrade from Bear Stearns' Andy Peck on Monday from Peer Perform to Outperform with a $4 price target. Peck's price target assumes no deal with XM. So it is a real bare bones price target.

Another positive coming in 2008 could be the broad installation of satellite radios in OEM car manufacturers, offsetting the weak acceptance of satellite radio in the retail distribution network.

All told, the vicious cycle that has hit the satellite radio industry appears to be subsiding. Below $3.00 per share, Sirius is worth a shot: it has customers, revenue and a lot a programming. The worst case scenario could be a terrestrial radio company acquires it.

Audio content provider Audible Inc. (NASDAQ: ADBL) on May 3 posted 1Q 2007 earnings that finally begin to generate some noise. The company has signed up 72,000 new members in 1Q 2007 alone, although most of these were through an introductory membership offer that does not generate substantial cash flow. Net revenue for for the quarter was up 28% to $25.3 million compared to 1Q 2006, and up 9% from 4Q 2006. More importantly, (though not as nice sounding in print) is that the net loss for 1Q 2007 was half of the net loss for 1Q 2006, $1.2 million in 1Q 2007 vs. net loss of $3 million in 1Q 2006.

In part, the net loss number is due to higher operating costs as Audible Inc. has contracted alliances with more and more content partners to offer audio entertainment, and also more educational programming. Distance education is the fastest growing segment of the post-secondary education market, and Audible Inc. is trying to become the audio education content provider of choice for many distance education programs. Among Audible's audio content affiliates are Amazon.com (NASDAQ: AMZN), Apple Inc. (NASDAQ: AAPL), and XM Satellite Radio (NASDAQ: XMSR), as well as more than 420 other content providers of 130,000 hours of audio programming. Audio books and audio educational programming is a viable economic format, as partnerships with Apple show. Apple currently provides advertising for Audible and co-markets for new members.

Even given Audible's modest improvements, the stock would have been a decent investment. It is up over 20% this year. Patient value-investors may want to give Audible Inc. a once over in the near future before the stock begins to attract more attention. Since the beginning of the year, there have been a number of upgrades to buy.

Crain's NewYorkBusiness.com has told me some amazing news. Today, at 5:00 pm EST, the all-talk radio station 92.3 WFNY will change back to its historic rock roots as WXRK, or K-ROCK, according to sources at CBS Radio (NYSE: CBS).

The move couldn't come fast enough.

Its the first sign of change under new CEO Dan Mason, who replaced Joel Hollander last month.

The move back to rock music ends the all-talk format when Howard Stern went to Sirius Satellite Radio (NASDAQ: SIRI) at the end of 2005. WFNY has struggled from day one. The station had a paltry 1.3 share of the audience during the 2007 winter quarter, the same a year ago.

Opie & Anthony, currently serving a 30-day suspension at XM Satellite Radio (NASDAQ: XMSR), will get to keep their morning drive job on the new (old) WXRK. After 9 am, the station will return to its rock roots.

Just minutes ago, Opie from the O&A was the first live voice listeners heard, as Guns N' Roses' "Welcome to the Jungle" played in the background. The station officially kicked off the format change playing one of Nirvana's greatest hits, "All Apologies."

Its O.K. K-Rock, I forgive you.

Monday April 23

• CA World 2007 to be held in Las Vegas
• L-3 Communications Holdings, Inc. (NYSE: LLL) to report Q1 earnings, conference call at 10 a.m.

Tuesday April 24

• Defense companies Lockheed Martin Corp. (NYSE: LMT) and Northrop Grumman Corp. (NYSE: NOC) to report Q1 earnings.
• Low-cost airline Jetblue Airways Corp. (NASDAQ: JBLU) to report Q1 earnings. Will Jetblue follow Southwest Airlines Co.'s (NYSE: LUV) disappointing report (which caused two analyst downgrades)? Or is the recent increased investment buy George Soros a sign that Jetblue is doing better?
• Alternative Energy Conference, hosted by Friedland Investment Events, to be held in NY.

Wednesday April 25

• The Boeing Co. (NYSE: BA) to report Q1 earnings; conference call at 10:30 a.m. Will Boeing discuss Airbus's decision to halve the price of its A350 planes in order to become more competitive with Boeing's 787 Dreamliner?
• Market darling Apple Inc. (NASDAQ: AAPL) will also report Q2 earnings, conference call at 5 p.m.

Thursday April 26

• XM Satellite Radio Holdings, Inc. (NASDAQ: XMSR) to report Q1 earnings; conference call at 10 a.m. Investors will look for any comments relating to the state of the potential merger with Sirius Satellite Radio Inc. (NASDAQ: SIRI).

Friday April 27

• YRC Worldwide, Inc. (NASDAQ: YRCW) to report Q1 earnings; conference call at 9:30 a.m.

MAJOR PAPERS:

• The Wall Street Journal reported that XM Satellite Radio Holdings Inc (NASDAQ: XMSR) is being sued by members of the National Music Publishers Association over XM receivers with the XM+MP3 service, which allows listeners to store songs they hear on XM onto their players. The suit is charging XM with "unlawfully reproducing and distributing copyrighted music without paying appropriate royalties."
• The Wall Street Journal speculated that the most plausible course of action for Cadbury Schweppes ADS (NYSE: CSG) confectionery operations would be a merger with Hershey Company (NYSE: HSY), which the article said would be "tasty for investors."
• General Electric Company (NYSE: GE) said it would launch a $1.14B takeover bid for leasing firm Sanyo Electric Credit, marking a potential windfall for major shareholder Goldman Sachs Group Inc (NYSE: GS). Sanyo Credit agreed to the offer which will run from Monday to May 9, reported the Financial Times.

OTHER PAPERS:

• According to India's Economic Times, Google Inc (NASDAQ: GOOG) is open to acquiring Indian technology companies with "interesting technologies." The company already said it would invest in two Indian early stage venture capital funds last month.
• The Economic Times also reported that Tata Group is in talks about buying a stake in Deutsche Telekom ADS's (NYSE: DT) business unit, T-Systems, citing a report from German business weekly Focus Online.

While private equity firms pay bubble prices for bubble assets, Sirius Satellite Radio's (NASDAQ: SIRI) Mel Karmazin is in front of Congress attempting to consolidate an industry whose outlook is not as bad as most perceive. Mel is essentially going for the kill by getting control of an asset that will turn into a free cash flow machine in the next few years.

Financial news reports are filled with Mel in front of Congress battling for his XM Satellite Radio (NASDAQ: XMSR). As a reminder, Mel, over his long tenure as a radio executive, has made a lot of money for Howard, for Mel and for shareholders. Mel loves to make money for people.

On the opposite end of the spectrum, we have private equity firms battle for TXU Corp (NYSE: TXU), a company that was selling for $5 per share in 2002 and is now at $69. TXU is fraught with problems. The deal has to get regulatory approval in Texas and it has to address environment concerns due to its coal-fired power generation plants. In addition, there are reports this morning of a potential rival bid for the company.

Mel is consolidating an industry that is out of favor and few investors care about. The large private equity firms are paying peak prices in desperation to put their money to work.

Advice: Go with Mel and let the private equity bubble-head firms lose a fortune.

Sirius Satellite Radio (NASDAQ: SIRI) is simply eating XM Satellite Radio's (NASDAQ: XMSR) lunch. Mel Karmazin continues to plow forward while XM management wanders aimlessly.

Karmazin reiterated targets set in late 2006, expecting revenue to jump from $637 million in 2006 to $1.0 billion in 2007. Sirius also generated free cash flow, after capital expenditures, of $30 million for the 4th quarter -- a big accomplishment.

Karmazin also said, once again, that Sirius' growth from nascent business to $1.0 billion in revenue is the fastest growth in radio history.

What is more impressive is that while XM backed away from virtually all of its guidance for 2007 and pushed out much of its OEM growth to 2008, Sirius did not do the same. Chrysler will install Sirius in 40% of cars, Ford goes from 4 models to 22 models and Mercedes will install Sirius in two-thirds of its autos.

Not everything will be rosy. Sirius warned that data coming out regarding January 2007 comparisons with January 06, as year-over-year comps will be weak because of such strong comparisons last year due to net adds resulting from Howard Stern. Starting in February, the comps will begin to improve.

Also, churn will jump up to 2.0%-2.4% as some OEM deals reach their anniversaries, up from 1.6%.

All told, stay focused on Sirius. Content of Stern, NBA, NASCAR plus lots of other stuff appear to be driving subscriber adds. Do not run away from this industry due to XM's weak results.

Sloppy is an accurate description of yesterday's conference call. The company shifted subscriber growth expectation out to 2008, saying XM Satellite Radio (NASDAQ: XMSR) is focused on the auto OEM and not the retail market. OEMs will begin to ramp XM Satellite services in greater numbers in 2008, management claimed.

Pushing growth out to 2008 for a so-called growth company in a so-called growth industry is not good. Also, converting customers from promotional periods to paying customers, or gross adds to net adds, remains low. Which has always been difficult to figure out in this industry.

It also came across that more and more of XM's success is based upon closing the deal with Sirius Satellite Radio (NASDAQ: SIRI). Although management attempted to say otherwise.

Management also went into some rambling about how it will always take care of customers that own older radios -- which was nice, but unclear as to why management emphasized this during the call. What are you going to do -- hang your customers out to dry?

Also, the top management change made last year appears not to be having the intended consequence. After XM started showing weakness in maintaining and getting subscribers in 2006, the satellite company brought in Nate Davis to get the company going again, but his arrival has done little to improve the outlook for this company.

Sirius releases earnings this morning. This Fly has been recommending buying Sirius on weakness and staying away from XM for a long time. Hopefully, Sirius does not push its growth targets out till 2008. We will see.

When I wrote GM/Chrysler or Sirius/XM: Two losers don't equal a winner, few readers took exception with my comments about the potential rumored auto industry merger. The same was not true about the proposed merger between Sirius Satellite Radio, Inc. (NASDAQ:SIRI) and XM Satellite Radio Holdings, Inc. (NASDAQ:XMSR), so I thought I would follow up with my response:

To all the satisfied satellite radio subscribers,

I am glad you are enjoying the opportunity to be part of this trend and maybe someday I will change my mind about subscribing as well. That is, if these companies survive their 'burn rates'. Some great testimonials have been given and I have taken note. Thank you for taking the time to comment.

I am not convinced, however, that speculating on these companies from an investment perspective is sensible with all the other opportunities available out there. While many commented that traditional broadcast radio is awful and limited, the same is not true for your investment dollar.

Peace

The first non-holiday week of 2007 will also kick of the January earnings period and feature two of the biggest technology conferences of the year: The Consumer Electronics Show and Macworld 2007.

Monday January 8

• Consumer Electronics Show in Las Vegas from 1/8 - 1/11
• Macworld 2007 in San Francisco from 1/8 - 1/12

Tuesday January 9

• Alcoa Inc. (NYSE: AA) to report Q4 earnings; conference call at 5 p.m.
• Eastman Kodak Company (NYSE: EK) to hold investor meeting at 8 a.m.

Wednesday January 10

• Tiffany & Co. (NYSE: TIF) to hold sales conference call at 8:30 a.m.
• Walgreen Company (NYSE: WAG) to hold shareholder meeting at 3 p.m.
• Genentech, Inc (NYSE: DNA) to hold earnings conference call at 5:15 p.m.

Thursday January 11

• General Mills Inc. (NYSE: GIS) to hold 9 a.m. conference call to discuss 2H07 outlook
• XM Satellite Radio Holdings (NYSE: XMSR) to hold Q4 earnings conference call at 1 p.m.

Friday January 12

• Horizon Lines, Inc. (NYSE: HRZ) to hold 10 a.m. conference call to discuss 2007 guidance