The news flow in Qualcomm (QCOM) has gone from bad to worse over the last year, with only a small respite a month ago when the company announced a “Major Increase in Capital Return Program“:
Available Stock Repurchase Authorization Now $15 Billion
Annualized Dividend Increased 14% to $1.92 per Share
Plans to Repurchase $10 Billion in Stock within Approximately Twelve Months in Addition to Commitment to Return a Minimum of 75% of Free Cash Flow to Stockholders
Shorts covered on the news, and then long holders sold, and haven’t stopped since, as the stock is down 9% from the highs made march 10th following the announcement (circled):
Shortly before noon there was an interesting trade that caught my eye. When the stock was $67.50 a trader sold 20,000 Jan 60 puts at 2.72 and bought 20,000 Jan 70 calls for 3.52, paying .80 for the package. This trade breaks-even on the upside at 70.80, and on the downside at 60.80. If the stock is between 70 and 60 on Jan expiration the trader losses 80 cents, or $1.6 million in premium. At 60 or below the trader is put 2 million shares and suffers corresponding losses.
Backing out to the 4 year chart the strikes of the trade make more sense as $60 looks like long term support, and $70 appears to be short term resistance:
From a vol perspective the trader sold about 24 vol on the puts, and paid about 21 vol for the calls. That skew is good but nothing out of the ordinary. The chart below of 30 day at the money implied vol shows levels elevated near 30 in front of the company’s scheduled earnings on April 22nd:
That vol is likely to climb another 5 points or so into the e considering the recent moves in the stock. A few weeks back we offered a defined risk way to play QCOM for a bounce back to the March highs (read here).