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Is QUALCOMM, Inc. (QCOM) Headed for New Highs?

QUALCOMM, Inc. bulls are hungry for short-term calls

by 4/9/2014 11:05 AM
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Option Brief: Like most of the tech sector, QUALCOMM, Inc. (NASDAQ:QCOM) is bouncing back from its recent dip, up 0.7% at $79.44. In fact, the shares are on pace to end back atop their 10-day moving average for the first session in four. Against this backdrop, options players are once again showing an affinity for long calls, in order to gamble on higher highs for QCOM.

In the first 90 minutes of trading, the stock has already seen roughly 11,000 calls change hands -- almost double the average intraday rate, and more than four times the number of QCOM puts exchanged. Most of the action has transpired at the May 82.50 call, where nearly 7,200 contracts have crossed the tape, primarily in several large blocks around 9:40 a.m. ET. Almost all of the calls have traded on the ask side, and implied volatility is ticking higher at the back-month strike, hinting at newly bought bullish bets.

By purchasing the calls at a volume-weighted average price (VWAP) of $0.98, the buyers stand to profit if QCOM is sitting north of $83.48 (strike plus VWAP) at the close on Friday, May 16, when the options expire. This breakeven level represents expected upside of 5.1% to the security's current perch, and stands in territory not charted in more than 14 years. Delta on the calls stands at 0.31, implying a less than 1-in-3 shot of an in-the-money finish.

Should QUALCOMM, Inc. (NASDAQ:QCOM) shares remain beneath the strike throughout the option's lifetime, the most the buyers are risking is the initial premium paid for the calls. However, now is an opportune time to gamble with short-term options. The stock's Schaeffer's Volatility Index (SVI) of 17% stands in the bottom quartile of its annual range, suggesting QCOM's short-term options are attractively priced right now, from a historical standpoint.


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