Qualcomm Options Fly as Investors
Chase Long-Lost Romance
By Dan Colarusso
Associate Editor
Street.com
9/12/00 1:01 PM ET
Since May, Qualcomm (QCOM:Nasdaq - news)
shares have had little of the luster that made the stock
the Nasdaq Composite Index's 1999 darling.
But recently, some
options traders
had begun buying
Qualcomm call
options because
they believed the firm and the sector had spent an
ample amount of time in the market's woodshed.
And today's pop in Qualcomm shares is rewarding
them for their confidence is a big way, while attracting
more volume in October contracts from believers.
"It think telecom
has bottomed out,"
says money
manager David
Schultz of
Summit Capital Holdings, who is long Qualcomm,
Nextel (NXTL:Nasdaq - news) and Telefonos de
Mexico (TMX:NYSE - news).
Qualcomm's shares were running -- up 7.5% to 62.50
at midday -- based on reports that China would be
selecting the company's CDMA standard for cellular
communications, and the prices of its the short-term
options were reflecting some of that same froth.
The October 65 calls traded 750 contracts and jumped
1 15/16 ($193.75) to 4 5/8 ($462.50). The October 70
calls traded more than 1,500 contract, volume that
drove the price up 1 5/16 ($131.25) to 3 ($300).
Schultz says the short-term options looked expensive
but that some traders who wanted to own Qualcomm
would be wise to sell put options, a trade that would
obligate them to buy Qualcomm shares at the strike
price of the options they sold.
While the October 70 call action could have been some
investors selling calls against the chance Qualcomm
would follow through on today's rally, some traders
went for longer-term options that are usually used as
proxies for the actual stock.
More than 1,000 call contracts expiring in January 2002
changed hands in morning action. The 2002 January 70
calls were trading for around 19 1/2 ($1,950). Long-term
options, called LEAPS, are used by investors who want
to get the same appreciation as the stock without the
capital outlay of buying the shares.
One LEAPS option -- like standard options -- is worth
100 shares of the underlying stock. And while LEAPS
are more expensive than shorter-term options, they
have become popular with individual investors seeking
long-term positions.
Investors and analysts, Schultz says, "are willing to
start playing to bottom of a trading range" especially in
big name stocks such as Qualcomm and Yahoo!
(YHOO:Nasdaq - news). |
