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Option Idea of the Week: QUALCOMM, Inc. (QCOM)

Skepticism lingers as QCOM sits near historical highs

by 6/13/2014 8:36:26 AM
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California-based digital communications name QUALCOMM, Inc. (NASDAQ:QCOM) has been on quite a bullish tear in recent months. Year-over-year, the stock has risen nearly 30%, easily outperforming the broad market. And as recently as April 21, the shares had reached $81.66 -- their highest perch since January 2000.

In the subsequent weeks, the stock has come back to earth a bit, setting up what looks like a potential entry point for a bullish trade. This week, QCOM pulled back to test its 80-day moving average, which has previously acted as a springboard for the shares. Data from Schaeffer's Senior Quantitative Analyst Rocky White reveals that 21 days after the last 11 retests of this trendline, QUALCOMM was in the black 82% of the time (with an average gain of 2.7%).

Daily Chart of QCOM Since June 2013 With 80-Day Moving Average

Even as QCOM continues to march north, there are overt signs of skepticism toward the equity. During the last 10 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for example, nearly 37,000 put options have been bought to option, versus 13,798 calls. The resulting put/call volume ratio of 2.68 stands a mere 1 percentage point shy of an annual peak. In other words, long puts have rarely been more popular (relative to long calls) during the past 12 months.

In a similar vein, Schaeffer's put/call open interest ratio (SOIR) for QCOM stands at 0.65, in the 88th annual percentile. Simply, the speculative crowd is more put-focused than usual, at least among options with less than three months until expiration. If these bearish speculators begin to capitulate, QUALCOMM shares could benefit.

There is also a little wiggle room as far as Wall Street is concerned. The consensus 12-month price target of $85.39 stands a mere 7.6% north of the stock's current price of $79.34. If more brokerage firms begin to up their respective price targets -- as Canaccord Genuity did yesterday and Susquehanna did today -- additional buying pressure could emerge.

Finally, QUALCOMM Inc. (NASDAQ:QCOM) option prices are relatively affordable right now, from a volatility perspective. Specifically, QCOM's Schaeffer's Volatility Index (SVI) of 13% is lower than all but 6% of the past year's worth of readings. Options traders interested in capitalizing on continued upside in QCOM shares may want to look at the in-the-money October 72.50-strike call, which currently sports an ask price of $8.05 per contract.

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