QCOM reports Q3 tonight after the close, the options market is currently implying about a 7.5% move vs the 4 qtr average move just a little shy of 4%.
-Wall Street analysts are overwhelmingly positive on the name with 33 Buys, 8 Holds and no Sells.
Expectations into the quarter are not particularly high given BRCM and TXN’s recent downbeat guidance.
Barron’s this morning summarized Goldman’s derivative strategists view on the name into what they see as a handful of near term catalysts:
QCOM: Goldman Advises Strangle Options Ahead of Earnings Posted by Tiernan Ray
The options trading team at Goldman Sachs today issued a “trading idea” that suggests you purchase Qualcomm’s (QCOM) November $49/$52.50 strangles at $3.04 going into what the firm rates as “four key catalysts.”
The QCOM strange is reflecting 42% implied volatility, the firm writes, “2 points below 3-month realized.” That means the contract is currently pricing in a move up or down of 7% on tonight’s earnings, which is more than the 6% move, on average, of the last 8 quarters, which may be justified, the team thinks, given the extra “catalysts” in the air.
MY TAKE: I think there is a very good chance that the qtr is a relative non-event and any disappointment in FYQ4 due to iPhone 4S delay will be made up in FYQ1 with the Apple ramp.
I want to Fade the move into earnings using weekly options and buy the NOV regulars to participate in what I think could be a run up into the company’s Nov 16th analyst day. Here’s the trade:
TRADE: QCOM ($51.53) BUY Nov4th weekly/ Nov19th 55 Calendar Call Spread for .40
-Sell 1 Nov4th (weekly) 55 call at .36
-Buy Nov 19th (regular) 55 call for .76
Break-Even on Nov Expiration(s):
NOV4th (this Friday): if stock 55 or below the Nov4th weekly 55 call that you are short expires worthless and you are long the Nov19th (regular) 55 call for essentially .40.
If stock is 55 or higher this Friday, you max loss is .40 the difference in premium btwn the 2 calls.
AFter Friday Nov 4, with stock below 55 you may want to then consider turning the call that you own into a call spread into the Analyst Day to further minimize risk…but lets cross that bridge when we get to it.
TRADE RATIONALE: the weekly 55 calls are pumped into tonight’s earnings and I am selling an option at a strike that is inline with the implied move….I think any near term disappointment in the current quarter or guidance will be met with enthusiasm at the company’s analyst meeting and I think calendars set up well for this scenario.