Stocks quoted in this article:
Is QUALCOMM, Inc. (NASDAQ:QCOM) set to make a major move on the charts? While the tech stock was singled out for a short strangle last Friday, one investor took the opposite tack today by opening a long straddle on QCOM.
Specifically, the speculator bought a block of 9,400 July 65 puts at the ask price of $2.76, and simultaneously purchased a matching block of 9,400 July 65 calls for the ask price of $1.63. The total net debit on the straddle was $4.39, and this is also the trader's maximum possible loss on the play. If QCOM settles exactly at $65 when July-dated options expire, the calls and puts will all expire worthless, and the speculator will forfeit this entire amount.
On the other hand, profits will begin to accrue once QUALCOMM, Inc. moves outside either one of the spread's two breakeven rails. The trader's calls will become profitable if QCOM rises above $69.39 (call strike plus net debit), while the puts will begin to show a positive return on a drop below $60.61 (put strike less net debit).
The shares are currently lingering near $64.11, so today's straddle player is banking on a rally of more than 8.2%, or a drop of more than 5.5%, over the next 11 weeks until expiration. QCOM's two-month historical volatility currently stands at 21.6%, so such a move isn't out of the question -- in theory.
However, a closer look at the charts reveals that QCOM hasn't topped the upper breakeven at $69.39 since April 2000. More recently, the shares haven't traded south of the lower breakeven at $60.61 since late December 2012.