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Is QUALCOMM, Inc. (QCOM) Poised for a Pullback?

QUALCOMM, Inc. traders purchased deep out-of the-money puts

by 3/11/2014 9:01 AM
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Option Brief: Despite logging a near-14-year closing high of $77.07 on Monday, QUALCOMM, Inc. (NASDAQ:QCOM) -- which last night named Derek Aberle its new president -- was targeted by put traders. Specifically, speculators purchased long-term puts on the stock to either gamble on a significant pullback, or to "insure" their QCOM shares in the event of a decline.

By the closing bell, the stock had seen roughly 7,200 puts cross the tape. More than half of that volume transpired at the out-of-the-money July 67.50 put, where 4,156 contracts traded. Ninety-six percent of the puts changed hands at the ask price, and most of the action took place in simultaneous mid- to large-sized blocks. What's more, open interest at the strike increased by nearly 3,200 contracts overnight, and the International Securities Exchange (ISE) confirms that a healthy portion of the puts were bought to open.

As alluded to earlier, the put buyers have one of two motives: to profit from the stock's breach of $67.50 -- a level 12.4% south of QUALCOMM, Inc.'s (NASDAQ:QCOM) current share price -- by July options expiration, or to hedge their QCOM shares. In the case of the latter, the traders want QCOM to extend its quest for new highs; the protective puts merely lock in an acceptable price at which to unload their shares ($67.50 apiece), should the equity take a major spill in the next few months.


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