Markets

Butterfly takes flight in Qualcomm

Qualcomm is down with the rest of the market, but one investor is looking for a big rally in a short time.

optionMONSTER's Heat Seeker tracking system detected a surge of call buying in the maker of wireless-communication chips. All the trades occurred in large blocks during the final 40 minutes of trading, which suggests activity by a large institutional investor.

A block of 10,000 September 60 calls traded for $0.05, along with 5,000 each in the September 55s for $0.08 and the September 65s for $0.05. There was no open interest in any of the strikes before the transactions occurred.

It looked as those all three were purchased, which would be wildly bullish. A more likely explanation is that the 55s and 65s were bought while the 60s were sold, resulting in a so-called butterfly spread.

The trade would have cost $0.03. It will make money if QCOM rallies above $55, with a maximum profit of 16,567 percent if the stock closes at $60 on expiration. The gains will dwindle back to zero between that level and $65.

QCOM touched $59.84 earlier this year, its highest price since the tech bubble broke in 2000. Yesterday's butterfly was a low-cost and highly leveraged bet it will push back toward that level.

The stock ended the session down 2.04 percent to $46.95. QCOM's last earnings report on July 20 beat expectations, but its outlook disappointed investors. Nonetheless, shares are down 18 percent in the last three months and are now holding support at a level where they gapped higher last November. That could make some traders think it's due for a bounce.

Calls outnumbered puts by almost 2 to 1 in QCOM yesterday, according to Heat Seeker.

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

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

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