Qualcomm Options Ripe for Premium Selling

Qualcomm options traders have been using premium-selling strategies to take advantage of elevated implied volatility

Apr 12, 2017 at 11:30 AM
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QUALCOMM, Inc.'s (NASDAQ:QCOM) options pits were buzzing yesterday, as the stock sold off on news the tech firm is countersuing Apple Inc. (NASDAQ:AAPL) over its use of QCOM chips in the iPhone 7. Roughly 55,000 QCOM options changed hands -- two times the average daily volume -- with 36,000 calls and 19,000 puts traded. Most notable was the action in the back-month May options series, where it appears one Qualcomm shareholder may be attempting to generate extra income by taking advantage of QCOM stock's inflated premium.

Specifically, two symmetrical blocks of 7,500 contracts simultaneously changed hands at QCOM's May 57.50 and 62.50 calls. It looks as if the lower-strike calls were sold to open, while the higher-strike calls were bought to close. In other words, it looks like one speculator rolled down her covered calls, which were written against her long stock strategy.

Diving even deeper, now appears to be an opportune time to sell premium on QCOM's short-term options, versus buying it. Not only does Qualcomm's Schaeffer's Volatility Index (SVI) of 38% rank in the 96th percentile of its annual range, but its 30-day at-the-money implied volatility of 30.5% is docked higher than 87% of all comparable readings taken in the past year. Summing it all up, the stock's near-term options are pricing in elevated volatility expectations at the moment.

More broadly, premium selling has been a popular strategy on QCOM in recent weeks. Over the past 10 trading sessions at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), options traders have initiated 7,603 short calls, versus 7,256 long ones. What's more, 1.65 puts have been sold to open for each one purchased during this same time frame.

Looking at the charts, QUALCOMM, Inc. (NASDAQ:QCOM) has struggled since news of an Apple lawsuit sent the shares gapping lower in mid-January. In fact, QCOM stock's mid-March rally was contained near $59 -- roughly the site of its bear-gap highs. Today, the shares are trading down 2.7% at $53.84, after BlackBerry Ltd (NASDAQ:BBRY) was awarded an $815 million preliminary settlement in an arbitration case against Qualcomm.

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