Here’s a little life hack for you. If you are in the business of trading catalysts, you should probably be organized and keep a close eye on upcoming events so that you can be ahead of them.
Regular readers know we are not fans of blindly following unusual activity (read our thoughts on the topic: Unusual Options Activity: Why it Can Matter & Why it Usually Doesn’t) but using unusualyl large directional options activity as one input or the spark of a trade idea can be as any place to start.
For example Qualcomm (QCOM). Last night they announced a massive addition to their existing $5 billion buyback of $15 billion (part of it accelerated in the next year) and raised their dividend. The stock has been on our radar for sometime, despite poor execution I have long thought the company’s balance sheet made it ripe for activists, from Nov 6th:
I suspect large investors with financial engineering degrees could take a strong interest in the woefully under-levered company with an interest towards increased capital return. In the quarter just ended, the company bought back $638 million worth of stock and paid a 42 cent dividend that yields 2.45% annually
I thought there was an impetus for investors to voice concerns given the stock’s laggard status. And since then there have been a few hiccups for the company, with fines in China, missed earnings and rumors of Samsung dropping them from their latest high-end smartphone. Which is why last week, when a large block of short dated out of the money calls were bought, it got my antennas up. From March 3rd:
QCOM – despite the stock’s 16% rally off of last month’s lows, it is still down on the year and well below the 52 week highs of $81.97 made in July. One trader is taking a shot in the dark. When the stock was $72.18 a buyer paid .13 for 24,000 April 80 calls to open. April expiration will not catch the company’s fiscal Q2 earnings scheduled for April 22nd, with the only scheduled event the company’s annual stockholders meeting on March 9th. Last year, on March 4th, the company announced a 20% increase to their quarterly dividend, and an additional $5 billion to their existing share buyback program.
I am a bit annoyed that I did not follow up with the idea as I had a definable event and a few pieces of the puzzle in place. My Bad. But to be sure, if I were inclined to take a shot for such an event I certainly would not have been buying 10% out of the money calls that expire in 6 weeks. (those calls are only up about 10c and need a much bigger move in the stock to really have a shot at a home run)
What I mean is even if you feel a trade idea coming together, and some unusual activity confirms your belief it makes sense to come up with your own way of expressing your view, rather than that of someone else’s that you have no idea what they are doing and why. The only thing worse than missing a trade is being there for it and having the entirely wrong structure on.