Qualcomm (QCOM) Earnings Preview: Historical Patterns and Option Strategies


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Qualcomm Upcoming Earnings Announcement
 
Qualcomm (QCOM) is set to report Q1 earnings on January 25, 2017 AMC. The company will host a conference call at 4:45 pm eastern.
 
The options markets are currently pricing in a +/- 5.3% move based on the at-the-money 27-Jan-17 option straddle.
 
The last earnings release on November 2, 2016, Qualcomm slid a meager -0.2% vs an expected move of 4.6% to close at $66.95. However, Qualcomm dropped significantly from its earnings close and now sits roughly at $55 per share or 18% lower after receiving an FTC complaint about its business practices coupled with Apple (AAPL) announcing a $1 billion lawsuit against the company. Qualcomm can experience a more volatile earnings move this quarter as investors pay close attention to managements conference call regarding the multiple lawsuits it faces.
 
Historical Earnings Moves and Patterns
 
Looking back at the last 4 quarters of earnings announcements, Qualcomm had an average move (abs) of 4.17% vs average expected moves of 5.06%. The first trading day following an earnings announcement, Qualcomm stock declined 5 of 6 times for an average negative return of -3.5%. However the buy and hold strategy was profitable if the stock was bought end of day post earnings and held for 1 week. This returned positive results 5 out of 6 earnings periods for an average return of +2.7%.
 
 
Option Strategies Around Earnings
 
Long At-the-money-straddle
 
Long 1 Call: 55 Strike @ $1.48Long 1 Put: 55 Strike @ $1.46Debit: $2.9
 
The ATM option straddle now sits at roughly $2.94 and the stock will have to move by 5.3% in either direction for the long straddle to make money by expiration. Anything within that range will result in lost premium. In the last six quarters, Qualcomm had an earnings move more than 5.3% three times (3 of 6 or 50%) for an average move 10.3%.
 
Long Iron Butterfly
 
Long 1 Call: 55 Strike @ $1.48Long 1 Put: 55 Strike @ $1.46Short 1 Call: 57.5 Strike @ $0.59Short 1 Put: 52.5 Strike @ $0.53Debit: $1.83
 
Long Iron Butterfly strategy, which is another way to play a volatile earning move but attempts to finance the straddle purchase with selling wings, is roughly $1.83. The maximum profit is 67 cents when the stock moves $2.50 beyond the $55 strike in either direction for a return of 36.6%. If the stock closes at $55, the entire premium of $1.83 will be lost and go to the seller.
 
Option Chain for 27-Jan-17 Expiration https://marketchameleon.com/Overview/QCOM/OptionChain/