Update – QCOM Call Calendar

by CC June 5, 2017 3:39 pm • Trade Updates

Back on April 19th we previewed earnings on a recently beaten up Qualcomm (QCOM) stock. We also detailed a defined risk way to play for a bounce, risking just 1.10 and selling the chances for the stock to rip on earnings, while targeting a slow move higher after. Here was the trade idea, from April 19th:

For those positively disposed at these lower levels but think the stock could be dead money for a bit, call calendars might be attractive. For example:


QCOM (52.50) Buy the April/July 55 call calendar for 1.10
  • Sell 1 April 55 call at .40
  • Buy 1 July 55 call for 1.60

Breakeven on April expiration/Rationale – This defines risk to just 1.20 for the event itself but then has optionality following earnings as the long call does not expire until July. The ideal situation is a slight move higher on earnings at which point the short April 55 calls can be closed and rolled. July captures the next earnings but despite that there is a significant skew between the April call vol being sold and the July vol being bought. July should not get hammered too much on Vol while April will. Risk is a big move lower or a massive gap higher through the 55 strike. But 55 is outside the implied move so that risk is low on the upside.

The stock didn’t do much on earnings, and flatlined for a few weeks after. But in May and now into June the stock has gotten off the mat a bit. With the stock now around $59, the trade idea is simply a July 55 call, worth about 4.75 vs the initial 1.10 at risk.

As far as trade management that’s a nice gain to just take now for those happy as is. The stock looks like it’s trying to get above $60 but failed to do so over the past few weeks. It’s possible it could do so later on, and earnings is just before July expiration, so a roll for those that want to play for higher highs, while booking profits from the original trade is a nice way to stay in the game:

Bullish Roll

Sell to close the QCOM ($58.85) July 55 calls at 4.75

Buy to open the July 60/65 call spread for 1.25

Rationale – This roll books 2.40 in profits from the original trade and allows for up to 3.75 in additional profits if the stock is at or above $65 on July expiration. July captures earnings so this should stay bid as long as the stock doesn’t get hit from here. If the stock does fail here at least most of the profits will have been taken off the table on the original trade.