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 (
). 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
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.