Qualcomm (NASDAQ: QCOM) options action calls for downside

By Jud Pyle, CFA,

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Shares of Qualcomm (NASDAQ: QCOM ) showed a little bit of strength today, and even outpaced the broad market gains. Options action however suggests at least one investor anticipates a little bit of downside in the next couple of months. QCOM closed at $36.80 on Monday, up more than 80 cents or 2.2%. The big catalyst for the shares will be the release of third quarter earnings figures, which are due after the close on Wednesday. Analysts are looking for 54 cents earnings per share ( EPS ). The earnings event is likely driving today's options action.

At 11:10 am EST, we see the September 33 puts changed hands 7,900 times for 80 cents per contract and the September 38 calls changed hands 7,900 times for $1.17 per contract as part of a synthetic short stock (split strikes) spread. The net credit on this spread is 37 cents. The September contracts just listed for trading this morning, meaning investors initiated this action to open as there were zero contracts of open interest prior to today.

The breakeven on this trade is $38.37 because investors collected premium to do this trade. Investors will lose money if the stock rallies higher than this price. On the other hand, if QCOM shares drop below the long put strike ($33), then the trade starts to make money above the premium collected dollar for dollar with the decline in the shares. Implied volatility of the September 33 puts was 36% at the end of the day today while the September 38 calls closed with an implied volatility of 27%. This compares to the stock's 30-day historical volatility of 29%.

QCOM shares are trading roughly 16% higher than their 52-week low of $31.63. It's interesting that at least one investor expects the stock to move toward these low levels even after the company announces earnings results.

The graph below illustrates the risk/reward profile of this synthetic short stock (split strikes) in QCOM. You can access essential trading tools like this by opening a free virtual trading account today.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing Options
Referenced Stocks: EPS , QCOM

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Jud Pyle

Jud Pyle

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