Qualcomm traders are bracing for another poor earnings report this month.
optionMONSTER's Depth Charge monitoring program detected the purchase of 20,000 January 60 puts for $2.72 and the sale of an equal number of January 70 calls for $3.52. Volume was more than twice the previous open interest at both strikes, which indicates that new positions were initiated in what is known as a collar trade .
The investor now has the right to sell 2 million shares in the semiconductor company for $60 no matter how low it may decline be on expiration. He or she is also obligated to deliver stock for $70 if it goes above that level, so they're probably using the strategy to protect an existing long position. (See our Education section for other hedging techniques.)
QCOM slipped 0.08 percent to $67.26 yesterday and has lost 14 percent of its value in the last year. Earnings have missed estimates for four straight quarters, resulting in a series of bearish gaps. The next set of numbers is due in two weeks, on April 22.
Yesterday's collar yielded a credit of $0.80, so if it gets triggered their effective minimum price would be $60.80 and their maximum would be $70.80. Both halves of the transaction will become worthless if it holds the current range.
Overall option volume in the name was triple average amounts in the session, with the collar accounting for more than half the total.
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