Qualcomm (QCOM) is scheduled to report its latest quarterly earnings after Wednesday’s close, and the company could silence its critics and halt its sliding stock price by posting better-than-expected results.
Despite topping estimates during each of the past four quarters by a range of 4 cents to 9 cents, shares tested a fresh 52-week low of $44.39 last week. Analysts are now expecting the company to earn 90 cents per share on revenue of $5.69 billion.
The backtest to resistance at $49 and the 50-day moving average failed on Monday’s run to $48.39. The technical picture remains somewhat bearish, but the major moving averages are trying to level out. Short-term support is at $46.50, followed by $45-$44.50.
The company currently pays a 4% yearly dividend of $1.92 per share. This might attract lazy fund managers to the stock, but a lousy quarter and lowered outlook could jeopardize the payout. On the other hand, a rosy quarter with sunny guidance could cause a short-covering rally.
The pullback looks like an attractive entry point, but earnings are always a tricky proposition, which is why it might be best to limit some risk.
QCOM Trades
Bullish traders could target the QCOM February $50 calls at $1.14 for a possible rebound towards $49-$50. A close above $52.28, technically, by mid-February would double these call options from current levels, as they would be “in the money.” These are the regular monthly options that expire on Feb. 19.
Bearish traders could target the QCOM January 29 $45 puts at 49 cents for a possible push to fresh 52-week lows. However, these are the weekly options that expire this Friday, and shares would need to be below $44.51 to break even on the trade. A double would occur if shares trade below $44.02 ahead of Friday’s closing bell.
The bid/ask prices can be a little wide when trading weekly options, so it would be best to use limit orders for any potential entries. Buying both aforementioned options together would create a “strangle” option trade, with a combined cost of $1.63. If shares are above $52 by mid-February, or below $43 by this Friday, the trade will be profitable. A triple-digit profit would occur if shares are above $53.26 or below $41.74 over the same time periods.
The premium and QCOM’s price movement might be asking a bit too much for the trade, so I will be watching the news from the sidelines. Earnings trades are great when they work, but premiums can get whacked if there is very little price movement during strangle trades.
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