Schaeffer's Trading Floor Blog

QUALCOMM, Inc. (QCOM) Retreats from Record Highs on Chinese Probe

Were QCOM shareholders protected against today's pullback?

by 11/25/2013 10:45 AM
Stocks quoted in this article:

News Brief: QUALCOMM, Inc. (NASDAQ:QCOM) announced today it is being investigated by China's National Development and Reform Commission (NDRC) for a potential violation of anti-monopoly laws (AMLs). In a press release, Qualcomm responded to the probe, saying, it is "not aware of any charge by the NDRC that Qualcomm has violated the AML. We will continue to cooperate with the NDRC as it conducts its confidential investigation."

The news has not been well-received on Wall Street, with the shares down 2.5% at last check. From a broader technical perspective, though, QUALCOMM has done well on the charts since hitting an annual low of $59.02 in July, with the stock up more than 20% to trade at $71.11. What's more, the equity has made a string of higher highs recently, including tagging a new 13-year peak last Friday.

Despite QUALCOMM, Inc.'s withstanding technical tenacity, option traders have been initiating bearish bets with some rapidity of late. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 0.48 ranks in the 71st percentile of its annual range. In other words, puts have been bought to open (relative to calls) at a faster-than-usual clip during the past two weeks.

In the front-month series, this penchant for puts has translated into high levels of open interest at QCOM's December 67.50 strike. Since Oct. 21 (the session following October options expiration), 7,842 contracts have been added here -- the majority of which have been bought to open. Given the out-of-the-money status of the puts, a portion of the activity could represent QUALCOMM, Inc. (NASDAQ:QCOM) shareholders hedging against any near-term downside.


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