Those that watch the satellite radio sector are well aware of the merger ratio of 4.6 shares of Sirius for each share of XM. Ever since the merger was announced, these equities have yet to trade closer to that ratio than they are right now. Over the past week, the trading ratio has jumped up to a 4.19 to 1 ratio, the highest level since the intent to merge was announced.

Speculators in this sector who feel that the merger will pass have been buying on ratio dips, where they could get up to a perceived 20% return upon merger approval by purchasing shares of XM. Today, that arbitrage has shrunk to about 9%, as something seems to be happening with street sentiment regarding the merger.

With an XM board member buying 270,000 shares of XM, it may be that there is perceived good news on the horizon by the street. Couple this stock purchase with the fact that both Sirius and XM are closer to certifying their compliance with the Department of Justices Second Request, and you have a formula that starts to exert pressure on the street.

Once Sirius and XM certify their Second Request compliance, a clock starts for the DOJ. Basically, unless other arrangements are made, the DOJ will either act or not act within 30 days. If the DOJ takes no action, the merger, in theory, can proceed. The wrinkle is that there is still the FCC that needs to be considered. Most anticipate that the FCC will follow suit with the DOJ.

The companies have stated that they anticipate closing the merger by the end of the year, which gave traders a window to trade the stocks without much fear that they would get caught on the wrong side of the trade with an announcement regarding the merger. As each day passes, that trading window begins to close, and the gap between current ratios and the merger ratio begins to narrow.

Already there are several analysts who are projecting a better than 50% chance of merger approval, and one analyst is even as high as 70%. Investors should watch and follow the analyst perception and compare that to street perception as seen in the current stock price ratio. As of right now, the bulls have the steam.

Position - Long Sirius, Long XM