Qualcomm, Inc. (QCOM) should be thriving in this digital world. After all, we are growing more dependent on tech in all aspects of our lives. Yet QCOM stock sporadically suffers major setbacks on inflammatory headlines. Litigation news has plagued investors in the past 12 months — lawsuits from Apple Inc. (AAPL) and the FTC, not to mention a fine from South Korea.
The fundamentals haven’t changed much yet, so to me it’s a matter of getting to a quiet period. Then, QCOM stock could regather its momentum.
Technically, it’s currently in a measured run with still some upside potential. In today’s trade I am not chasing the potential upside. It’s more like I want to profit from the value below.
Instead of chasing prices, I prefer selling risk against known ranges. It’s easier to know where QCOM stock is not likely to go than to determine its future stock target value. So looking back a few years, I see clear areas of defense. The idea is to sell downside risk against levels that should be defended in case of corrections.
I also would be remiss not to note this: The industry and the broader equity markets are near all-time highs. This adds extra risk since the consensus now is that we’re due for a market correction, and soon.
How to Go Long QCOM Stock Here
The trade: Sell the QCOM Oct $45 put. This is a bullish trade for which I collected $1.10 to open. The 22% buffer from current price gives me a 90% theoretical chance of success.
Selling naked puts is risky, so I only do it if I’m willing and able to own Qualcomm stock at my sold strike. If QCOM falls below $45 per share, I will be put the stock and anything below $44 would accrue losses for me.
Usually I like to balance my trade by selling opposing risk, but I will refrain from doing so in this case. I am confident that the longer-dated options would allow me to manage price gyrations.
Selling naked puts is not for everyone. For more conservative tastes and smaller accounts, I can turn this trade into a credit spread instead.
The alternate: Sell the QCOM Oct $45/$40 credit put spread. This too is a bullish trade with the same chances of success. If QCOM stock stays above $45 per share, my potential yield is 11% on money risked.
I am not required to hold my trades open through expiration. I can close them for partial gains or losses at any time.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @racernic and stocktwits at @racernic.
