Stocks quoted in this article:
Call players have shown an overwhelming interest in QUALCOMM, Inc. (NASDAQ:QCOM - 60.98) today, as approximately 22,000 of these options have changed hands -- double its average daily call volume, and around 2.8 times the number of puts exchanged. Much of the attention has centered on the February 65 call, which saw a massive block of 8,000 contracts cross the tape at the bid price of $1.03, suggesting they were sold. Plus, volume outweighs open interest at this out-of-the-money strike, which points to sell-to-open activity.
By writing the 65-strike calls to open, the seller expects QCOM to remain south of $65 throughout the options' lifetime (which ends on Feb. 15). In this best-case scenario, the calls would expire worthless, allowing the seller to pocket the entire premium received, which also represents the maximum potential profit for the play. If this transaction was part of a covered-call or buy-write strategy, the trader would be content to unload his existing QCOM stock to the call buyer on a move above $65. Otherwise, potential losses for an uncovered (or "naked") call are theoretically unlimited, should QCOM rally higher.
Recent options activity shows that optimism has actually been on the rise for QCOM, which has racked up a 10-day call/put volume ratio of 3.28 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). In other words, options traders have bought to open more than three calls for every put during the past couple of weeks. This ratio ranks in the 78th percentile of its annual range, highlighting a healthier-than-usual appetite for bullish bets over bearish.
Although QCOM has been on a slow-but-steady uptrend in 2012 -- tacking on nearly 11.5% year-to-date -- the aforementioned $65 level has only been penetrated on four occasions since mid-April. What's more, the shares are currently battling with their 10-month moving average, which could emerge as a formidable technical challenge heading into the new year.