A lot can happen to a stock in just a couple of weeks. There were 275.5 million shares of Sirius XM Holdings (NASDAQ:SIRI) sold short at the end of January, the largest number of bearish bets placed on the satellite radio provider in more than a year. Two weeks later, short interest fell to 174.7 million shares, a fresh 52-week low in pessimism. 

The closing of Sirius XM's deal for Pandora Media (NYSE:P) -- sending arbs off to close out their positions -- is probably the biggest reason for the reversal. However, short interest is now even lower than where it was before Sirius XM announced its plan to buy the streaming radio pioneer. Having Pandora now under Sirius XM's wing is a reason -- but not the reason -- for more than 100 million net shares covered through the first two weeks of February. 

Steek Panther at the Air Nation channel on Sirius XM Radio.

Image source: Sirius XM Holdings.

Cracking open Pandora's box

It's been a little more than five months since Sirius XM announced plans to acquire Pandora in an all-stock deal initially valued at roughly $3.5 billion. The combination always made sense. The two were flirting with one another more than Bradley Cooper and Lady Gaga at last weekend's Oscars. 

It was an easy purchase for Sirius XM to make. The all-stock deal wouldn't eat into its debt load, and Sirius XM already owned a 15% stake in Pandora. With Pandora trading at a discount to the 1.44 shares of Sirius XM those shareholders would be receiving, it was also an easy purchase for arbitragers and other hedge funds to make. Buy Pandora stock. Sell Sirius XM shares. Pocket the difference when the deal closes by wrapping up both positions.

The vast majority of the short positions that have been covered since the end of January through mid-February were likely from arbs playing the deal to score the discount difference. However, it also wouldn't be a surprise if many of those who have moved on also figured that betting against Sirius XM can be hazardous to their financial wealth. 

Check out the latest earnings call transcript for Sirius XM.

The last laugh belongs to Sirius XM

Growth may be slowing at Sirius XM, but with 34.1 million subscribers and counting, we have yet to see subscribers peak. Pandora will also be more than just a new toy for Sirius XM to play with. The two companies perfectly address the blind spot in the other. Sirius XM hasn't been able to get consumers to appreciate it organic streaming options, and Pandora needs to get its free users to value content enough to start paying. 

Sirius XM also has one of the more enviable winning streaks on Wall Street. It has delivered positive returns for 10 consecutive years. Even Sirius XM's quarterly dividend, as small as it may be, is a trickling nuisance for shorts to shell out. 

Sirius XM will continue to be a heavily shorted stock. The low share price and heavy volume make it a liquid position to bet against. However, with more positive than negative catalysts on the way, it would be as big a mistake to short Sirius XM now as it has been over the past decade.