If you bet bearish on Qualcomm, Inc. (NASDAQ:QCOM) recently, you’re probably feeling a bit worried right now. QCOM stock has rebounded off its post-earnings lows near $49 and is once again trading back above former support at $50. But don’t panic yet, it will take more than an oversold bounce to push Qualcomm out of its bear-market downtrend.
Click to Enlarge For instance, QCOM stock’s current rebound was stopped cold yesterday by resistance at its 50-day moving average. The shares haven’t closed north of this trendline since July, when the company posted lackluster third-quarter earnings.
What’s more, Qualcomm’s patent and legal issues continue to worsen, with a Korean court denying a stay on an order that requires the company to “to engage in good-faith negotiations with chip companies seeking a license and to negotiate possible amendments with current licensees upon request.”
As a result of Qualcomm’s mounting woes, the bulls have all but given up on the shares. Specifically, Thomson/First Call reports that 17 of the 26 analysts following QCOM stock rate the shares a “hold.” That said, the 12-month consensus price target rests at $59.44, representing a 14% premium to yesterday’s close. Given Qualcomm’s issues, this target could use some trimming.
Qualcomm stock options traders are looking for the exits. Currently, the November put/call open interest ratio rests at 0.93, with puts nearly outnumbering calls among back-month options.
Implieds, meanwhile, are pricing in a potential move of about 5.6% for QCOM ahead of expiration. This places the upper bound at $55, while the lower bound rests near $49. Once again, a rejection at QCOM stock’s 50-day moving average should send the shares back below $50, meaning $49 could fall just as quickly.
2 Trades for QCOM Stock
Put Spread: Traders looking to take advantage of a renewed downtrend for QCOM stock might want to consider a Nov $50/$52.50 bear put spread. At last check, this spread was offered at 95 cents, or $95 per pair of contracts. Breakeven lies at $51.55, while a maximum profit of $1.55, or $155 per pair of contracts — a potential 63% return — is possible if QCOM stock closes at or below $50 when November options expire.
Put Sell: For those looking for a more neutral to bearish play, a Nov $45 put sell might be a way to capitalize on technical support. At last check, this put was bid at 26 cents, or $26 per contract. The upside to this put sell strategy is that you keep the premium as long as QCOM stock closes above $45 when Nov options expire. The downside is that should QCOM trade below $45 ahead of expiration, you could be assigned 100 shares for each sold put at a cost of $45 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
