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Qualcomm Option Bulls Roll the Dice On an Earnings Beat

QUALCOMM, Inc. hit a 14-year high ahead of tonight's quarterly earnings report

by 7/23/2014 2:58 PM
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QUALCOMM, Inc. (NASDAQ:QCOM) will follow in the footsteps of a number of its sector peers when it reports quarterly earnings after tonight's close. Ahead of the event, call volume has soared to more than three times the typical intraday pace today, with eleventh-hour speculators targeting a move to another multi-year high in the wake of the results.

Specifically, the August 82.50 call is the most active QCOM strike today, where 6,158 contracts have traded -- mostly at the ask price, pointing to buyer-driven activity. Plus, implied volatility on this option has edged higher, hinting at the initiation of new positions.

The volume-weighted average price (VWAP) for the calls is $1.31, making breakeven at the close on Friday, Aug. 15 -- when front-month options expire -- $83.81 (strike plus VWAP). Profit will accrue with each additional step north of here, while losses are limited to the initial cash outlay, should QCOM finish south of the strike at expiration.

As touched upon, the equity hasn't traded north of the breakeven mark since January 2000, with QCOM last seen at $81.87. However, the stock has been making a string of higher highs of late, and tagged a fresh 14-year peak of $81.97 earlier, after Northland Securities raised its outlook for QCOM to "outperform" from "market perform." What's more, as my colleague Andrea Kramer noted yesterday, over the past seven quarters, QUALCOMM, Inc. (NASDAQ:QCOM) has averaged a one-week post-earnings gain of 1.5%. For QCOM's fiscal third quarter, Wall Street is calling for a profit of $1.22 per share -- a 19-cent improvement over the company's year-ago results.


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