Dykstra: Take a Ride on XM Satellite Radio

Last week was successful for the markets and for the deep-in-the-money call strategy. Domestic and international markets regained some of their losses from the week before, and three of my deep-in-the-money calls came in, paying off as expected.

The most recent payoff came Friday, when the Andarko(APC Quote) August 30s (APCHF) that I suggested Feb. 28 at $10.50 came in. During last Friday's trading session, the calls traded up to $11.50, $1 above purchase, where I always put my good-till-canceled limit order.

Mergers are one of the major driving forces of any bull market. Although it remains unclear which way the broader markets are heading, investors love finding value in mergers, as they hope companies can gain a competitive advantage and better position themselves for success.

On Feb. 19, XM Satellite Radio(XMSR Quote) and Sirius Satellite Radio(SIRI Quote) announced a merger that many on Wall Street had been waiting to see for years. This deal, if approved, would enable these former foes to focus on maximizing profit, rather than breaking each others' backs.

Since the inception of their satellite radio service battle, XM and Sirius have focused on maximizing their subscriber base by differentiating their products from each other. The companies went to great lengths and expense to achieve this goal, so while revenue has grown at both companies, profit has not. The lack of profits is a direct result of the intense competition.

With this merger, the removal of this pressure to attract subscribers will allow these two companies to focus on what really matters: differentiating their product from the various other forms of media. Together, the former foes can focus on bringing new listeners into satellite radio and making satellite radio as strong a product as possible.