Qualcomm, Inc. (NASDAQ:QCOM) is warming up in the bullpen for its earnings announcement. Shares of the semiconductor and telecommunications company are on the ropes heading into Wednesday’s main event. QCOM stock is down just shy of 20% year-to-date which is a terrible showing compared to the broader technology sector.
Click to Enlarge
Not surprisingly, QCOM finds itself submerged beneath all major moving averages. That means resistance aplenty looms overhead and sellers undoubtedly hold the upper hand ahead of Wednesday’s fireworks.
And yet, as many a chartist will attest, recent price action provides few clues on the path of the post-earnings gap. Directional betting into these quarterly rituals is always a bit of a crapshoot regardless of any analysis performed beforehand.
Fortunately, the options market does provide insight into how much QCOM is expected to move. All we have to do is look at the weekly straddle value which reveals how much speculators are paying for short-term, at-the-money calls and puts. The April 21 $52.50 straddle is currently trading for $2.54, which suggests Qualcomm will move up or down 5% by week’s end. At least, that’s the most likely outcome.
Given how much QCOM stock has been moving recently, a $2.50 move over three days doesn’t strike me as all that much. Due to the pumped up implied volatility, I’m usually not a fan of buying options into earnings.
But in this case, I’ll make an exception.
Buy the Volatility in QCOM Stock
If you’re willing to bet QCOM shares pop above $55 or plunge below $50 by the end of trading on Friday, buy the 21 April $52.50 straddle for $2.54. The bi-directional strategy consists of buying the 21 April $52.50 call and put options. The max loss is limited to the initial $2.54 and will occur if the stock is pinned right at $52.50 at expiration.
The max gain is unlimited so pull out the pom-poms and root for a massive upside (or downside) surprise following Wednesday’s release.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
