Options Trading News

November 1, 2013  Fri 12:20 PM CT

Traders are playing for a breakout in Qualcomm, which reports earnings next week.

optionMONSTER's Heat Seeker monitoring system detected the purchase of about 11,000 December 72.50 calls for $0.92 and the sale of an equal number of December 65 puts for $0.73. Volume surpassed open interest at both strikes, indicating that new positions were initiated in the semiconductor company.

Buying calls locks in the price where a stock can be purchased, while selling puts lets the investor collect money if shares hold above designated levels. Combining the two is highly bullish, letting the trader play for a rally at minimal cost but carry risk if the stock falls too far. (See our Education section)

Today's strategy cost just $0.19 per contract, or $209,000. That amount initially controls about 528,000 shares, with leverage increasing to the upside or downside. The position will dwindle in value if no move occurs.

Using the combination trade prevents the investor from missing a rally, while also programming a buy order at $65 if it drops. (See our Education section for more on how to manage trades more effectively with options.)

QCOM is up 0.29 percent to $69.69 in afternoon trading, continuing to consolidate at its highest level since the 2000 tech bubble. The company's next quarterly results come out next Wednesday, Nov. 6, after the closing bell. The last report beat expectations and management raised guidance.

More than 57,000 contracts have changed hands in the name so far today, almost triple its average daily amount for the last month. Overall calls are outpacing puts by nearly 2.5 to 1.
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As I stated in last week's article, a break out or a break down needs to have a couple things happen before it is considered a confirmed break out or break down. The only problem is that in today's market where things move much more quicker than they did just a few years ago, two days could wind up being the majority of the expected movement, if not the whole movement.

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