Play Description
We couldn't have scripted this play any better. QCOM behaved exactly as expected finding support at higher-lows on low consolidating volume. If the channel holds, $368 +/- will be the new support. Also textbook-like, resistance came at $390 (actually $392) before heading down again. In Friday's euphoria, QCOM found support at $383, but we think there will be dips to buy along the way to a probable breakout. Remember, QCOM is forming an ascending pennant on the chart, which generally portends a breakout on huge volume. What will drive the volume? The 4:1 split (which will be voted upon at a special shareholder meeting on Dec 20th - any objections?) which will likely be effected quickly thereafter; and then the prospect of QCOM making an announcement of the disposition of its handset business at the same time. Barring the normal market fluctuations or a market- wide meltdown, look for entry points on ascending support and sell points at $390 as long as volume remains low. We are not suggesting this will be the date (it could obviously happen sooner or later), but December 9th or 10th is the graphical convergence date. It is also well into the time period when a typical split run takes place. When you see big volume move the price over $392 and Dec 20th hasn't happened yet, get on the train, but don't give up give up your judgement. Until then, plan your trades using support and resistance just like any other.
Update
The news is above, but some words of caution before you jump in: don't buy December strikes and sit on them. The time decay will eat us alive with only 2 weeks to go, not to mention that they will be worthless 3 days before the shareholder meeting. As we noted Thursday, if you can stomach the price, look at and consider the JAN strikes so you don't get the stuffing knocked out of your account from the rapid time decay. For the intestinally fortified, selling ATM puts could produce a turbo- charged return, but also carries nitroglycerin-like risk.
HIGH PREMIUM ALERT !! Another good strategy for this play would be to go long the stock and write covered calls at or out of the money. The premiums are so inflated that even an ATM contract with 10 trading days remaining can yield roughly a 5% return until December 17th.
***December strikes expire in 2 weeks***
Action Month
Strike Symbol Open
Interest Closing
Price Stop
Loss Comments
BUY CALL DEC-370 AAF-LN 2577 29.25 22.00
BUY CALL DEC-380 AAF-LP 2194 23.00 18.00
BUY CALL DEC-390* AAF-LR 2188 18.163 14.00
BUY CALL DEC-400 AAF-LY 3501 14.38 11.50
BUY CALL JAN-380 AAF-LP 1240 47.88 37.50
BUY CALL JAN-390 AAF-AX 741 45.00 35.00
See risks of selling
SELL PUT DEC-360 AAF-XL 1108 8.00 10.25 puts in p
optioninvestor |
