Audio entertainment firm Sirius XM (NASDAQ:SIRI) is struggling to stay relevant in a rapidly evolving world. As a result, SIRI stock has fallen almost 44% since the start of the year.

What gives? Back in the day, it seemed consumers couldn’t get enough of the satellite radio platform. However, some paradigm shifts materialized that did not favor SIRI stock.

In particular, Sirius XM was late to embrace digital streaming technologies. That left the company vulnerable to powerhouse players like Spotify (NYSE:SPOT) and Apple (NASDAQ:AAPL). Further, Covid-19 sparking work-from-home initiatives didn’t help.

Circumstances look bleak, let’s just be real.

However, it’s worth pointing out that while analysts see fiscal 2024 as a bust – with earnings per share and revenue projected to decline 6.3% and 1.8%, respectively, on a year-over-year basis – a slow recovery could take place beginning in fiscal 2025. That’s when EPS may rise to 32 cents on revenue of $8.95 billion. These figures basically match 2023’s results.

On paper, the 2025 projections don’t sound particularly impressive. Still, SIRI stock is responding in a big way.

Short Interest Could Shock the Bears

According to Barchart’s proprietary Trend Seeker tool, SIRI stock popped up as a “Buy Signal” recommendation on Tuesday. About 24 hours ago, shares gained almost 8%. Further, in the past five sessions, SIRI has gained more than 17%. Notably, MarketWatch’s automated watch list identified the audio entertainment specialist as a prospective opportunity.

Digging into the data, Fintel shows that the short interest of SIRI stock stands at 24.44% of its float. Further, the short interest ratio – or the number of trading sessions required to unwind all short positions based on average volume – came out to almost three days. As a rule of thumb, short interest above 20% is quite high.

For the bears, what makes this framework problematic is the possibility of unlimited liability. Let’s consider what a direct short position is – a wager against an enterprise. To initiate a short, a speculator must first borrow the underlying equity from a broker. From there, the trader dumps the shares in the hopes of picking them back up later for cheaper.

Whatever is the difference between the sold price and buy-back price when the speculator returns the equities back to the broker is the profit. However, irrespective of whether the shares fall or rise, the trader is contractually obligated to return the borrowed securities.

Long story short, a real panic can materialize if a targeted stock rises sharply in value. That’s the power of the so-called short squeeze.

Trade of the Day: Go Long-Expiry SIRI Stock Call Options

I’m going to get right into it. You always acquire Sirius XM shares in the open market. However, to really boost your risk-reward profile, my idea for the Trade of the Day is to buy long-expiry SIRI stock call options. Specifically, I’m looking at the 2024 Jan. 16 $4 call.

It’s a high-risk wager since single-digit stocks typically don’t have robust volume for their associated derivatives. Still, relatively speaking, the offering is tempting. On Tuesday’s close, the difference between the ask (38 cents) and the bid (35 cents) divided by the midpoint (37 cents) came out to 8.11%.

Further, the implied volatility (IV) sits at 42.14%, below the historical volatility (HV) of 51.23%. All other things being equal, this dynamic suggests there’s a greater incentive to buy this call rather than to sell it.

However, the real kicker for SIRI stock is that the bulls may be targeting the $4 level. That would make sense because it’s a technically significant barometer, which roughly coincides with SIRI’s 200-day moving average. Also, between March 2023 through March 2024, the $4 line has acted as both support and resistance.

So, don’t be surprised if under a short squeeze, SIRI shoots back up to this milestone.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.