Stocks quoted in this article:
Option players from both bullish and bearish camps are descending upon QUALCOMM, Inc. (NASDAQ:QCOM) this afternoon. The stock has bounced 3.5% higher to rest at $62.01 after hitting a year-to-date low of $54.96 in Monday's trading. In response, total volume is running roughly 2.5 times hotter than what is typically seen on an intraday basis. Specifically, roughly 42,000 calls and 23,000 puts have changed hands so far today.
Nearly half of this total volume was traded at two strikes: the August 55 put and the August 67.50 call. Blocks of 15,000 contracts changed hands at these strikes (at the same time), and a floor source confirms the calls were sold for $0.31 per contract, while the puts were purchased for $0.50 apiece. Given that volume exceeds open interest at both back-month strikes, the orders were evidently on the opening side, making this a synthetic short strategy, which combines long puts and short calls to bet on a decline in the underlying shares.
The synthetic short buyer will participate in all downside in the shares south of the $54.81 breakeven mark (the put strike less the net premium paid). If QCOM is trading anywhere between the two strike prices at expiration, the loss is capped at the $0.19 premium per spread. Should the stock advance beyond the 67.50 strike, however, losses are theoretically unlimited due to the short calls. Currently, the stock is hovering 13.1% above this breakeven level. In fact, QUALCOMM, Inc. (NASDAQ:QCOM) hasn't traded below $55 since last July, but today's large-scale trader believes downside is in the cards.
This trade comes on the heels of two synthetic long trades (long calls and short puts) that crossed the tape earlier this month -- another in the August series and a longer-dated bet using October options. One reason for these types of plays (versus buying or selling the stock outright) could be the reduced premium (and therefore outright monetary risk) involved in trading such large quantities -- 15,000 contracts effectively controls 1.5 million shares.
QCOM will face another earnings report ahead of August expiration, on July 24 after the close. Last quarter, the stock dropped 5.4% the day after its trip to the earnings confessional, despite meeting analysts' expectations.