“Armchair Trader Series” Recommendations
- Week Beginning -
Monday, March 19, 2018

by Ian Harvey

IMPORTANT NOTE: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

You may also wish to read Stock Options Made Easy Trading Philosophy

Option Trade - - QUALCOMM, Inc. (NASDAQ:QCOM) Puts

Thursday, March 22, 2018

** OPTION TRADE: Buy QCOM MAY 18 2018 55.000 PUT at approximately $2.20 each. Place a pre-determined sell at $4.40.

Also include a protective stop loss of $0.90.

QUALCOMM, Inc. (NASDAQ:QCOM), U.S. mobile chipset giant, received a big downgrade last week, and near-term prospects are pointing towards continued deterioration in the company’s margins.

Broadcom's takeover bid for Qualcomm drove up sentiment for both Broadcom stock and its target. However, President Trump, stepped in and quashed the biggest deal in the history of the technology industry. In doing so, both AVGO and QCOM look ugly.

It seems that Trump pulled the plug because the QCOM deal raised national security concerns. But just as importantly, he wasn't going to let a "foreign-ish" company with possible ties to China take over an American stalwart.

The move lets Qualcomm catch its breath as Broadcom has to back off, but the long-term consequences could hurt Qualcomm. That's because blocking Broadcom's takeover could impact Qualcomm's planned takeover of Dutch chipmaker NXP Semiconductors (NASDAQ: NXPI), which can't proceed unless it's approved by China's Ministry of Commerce (MOFCOM). Eight of the nine regulatory bodies whose approval is needed have already given the deal antitrust clearance; only China is left.

With President Trump now adopting a more protectionist stance, China's Ministry of Commerce (MOFCOM) could turn up the heat on Qualcomm. MOFCOM likely knows that Qualcomm desperately needs to close its buyout of NXP, the biggest automotive chipmaker in the world, to diversify its business away from mobile chips.

Therefore, MOFCOM could pressure Qualcomm to let Tsinghua take a stake in the newly combined company, or push Qualcomm toward additional joint ventures with local chipmakers. But if Qualcomm agrees to those terms, it could trigger a probe from U.S. regulators regarding national security and 5G concerns again -- which would delay the merger again.

MOFCOM could also simply sit on the deal. None of these potential outcomes would be favorable to Qualcomm, which could become a pawn in Washington and Beijing's protectionist trade games

Other Influencing Factors

Since FY 2014, Qualcomm's annual sales revenue has fallen by an average of 5% annually, from $26.49 billion in 2014 to $22.29 billion in 2017, as net income dropped from $7.54 billion to $2.47 billion in the same period. In that time, diluted EPS was down to $1.66 from $4.40.

With portfolio managers having mark-to-market targets to meet, these numbers explain why there is a strong wish for management change being harbored by a majority of institutional holders of Qualcomm. The company is to hold its rescheduled annual shareholder meeting on March 23, and more institutional shareholder dissatisfaction with the board is expected to surface at that time.

Despite these concerns many portfolio managers have stayed in the stock because of the market expansion promised by 5G, due in late 2018 after international wireless standards for the network were agreed in December.

There was also hope of an early resolution of the legal dispute with Apple Inc. (AAPL) over patent licensing fees, the issue producing customer withholding and regulatory fines which have been the main cause of Qualcomm's revenue decline.

However, the majority of institutional investors would have liked to have seen those landmarks achieved through a takeover by Broadcom, rather than at the hands of the existing Qualcomm board.

Analysts and Hedge Funds Opinions

QUALCOMM was downgraded by research analysts at BidaskClub from a “sell” rating to a “strong sell” rating in a research report issued on Thursday.

Also, Vetr downgraded shares of QUALCOMM from a “strong-buy” rating to a “buy” rating and set a $76.42 price objective for the company in a research note on Thursday, February 1st.

Three investment analysts have rated the stock with a sell rating, fourteen have assigned a hold rating and fourteen have issued a buy rating to the stock.

Institutional investors that have recently made a change to their positions in the stock….

Jennison Associates LLC cut its holdings in shares of QUALCOMM by 39.4% during the fourth quarter. The firm owned 1,521,746 shares of the wireless technology company’s stock after selling 988,261 shares during the quarter. Jennison Associates LLC owned approximately 0.10% of QUALCOMM worth $97,422,000 as of its most recent SEC filing.

Insider News……

  • EVP Matthew S. Grob sold 43,000 shares of the firm’s stock in a transaction dated Tuesday, January 9th. The stock was sold at an average price of $65.35, for a total transaction of $2,810,050.00.
  • EVP Alexander H. Rogers sold 713 shares of the stock in a transaction on Monday, January 29th. The shares were sold at an average price of $68.20, for a total transaction of $48,626.60.
  • Also, EVP James H. Thompson sold 50,126 shares of the stock in a transaction on Friday, March 9th. The stock was sold at an average price of $62.66, for a total transaction of $3,140,895.16.

Harvey’s Options Volatility Indicator


Among those potentially disruptive factors to which Qualcomm was subject were an enormous tax charge, large regulatory fines, a disappointing company forecast, customer resistance to a takeover of the company, and the rising cost of the NXP acquisition. This view has now been vindicated by subsequent events, with Qualcomm's stock exhibiting a downward trend since that time. Qualcomm's stock price has dropped 11.72% since January 22, 2018.

Analysts expect QUALCOMM to report $0.55 EPS on April, 18. They anticipate $0.65 EPS change or 54.17 % from last quarter’s $1.2 EPS. QCOM’s profit would be $814.19 million giving it 27.55 P/E if the $0.55 EPS is correct. After having $0.85 EPS previously, QUALCOMM Incorporated’s analysts see -35.29 % EPS growth. QUALCOMM has risen 9.31% since March 17, 2017 but it has underperformed the S&P500 by 7.39%.

The company has a market cap of $86,408.79, a P/E ratio of -20.00, a P/E/G ratio of 1.82 and a beta of 1.35. The company has a debt-to-equity ratio of 0.81, a current ratio of 3.41 and a quick ratio of 3.25. QUALCOMM has a 52 week low of $48.92 and a 52 week high of $69.28.

Option Trade - Facebook Inc. (NASDAQ:FB) Puts AGAIN

Wednesday, March 21, 2018

** OPTION TRADE: Buy the FB APRIL 20 2018 160.000 PUT at approximately $3.00. Place a pre-determined sell at $6.00.

Also include a protective stop loss of $1.20.

On top of the dramas that have already unfolded for Facebook Inc. (NASDAQ:FB) more are on the way today.

The European Commission is set to unveil proposals today for a digital tax on U.S. tech giants that could further embitter the trade row pitting the EU against President Trump. The tax, expected to be about 3% of sales on companies with worldwide annual turnover above €750M, would come alongside a tightening of rules on data privacy.

Facebook is facing investigations on multiple fronts after revelations that data on 50m users were improperly harvested by an analytics firm used by Donald Trump’s campaign. The most serious of these inquiries may be one by the US Federal Trade Commission, which settled a similar privacy complaint with Facebook in 2011.

The FTC is looking into whether Facebook violated its 2011 settlement by allowing the misuse of user data ostensibly collected for academic research. Facebook could be liable for fines of up to $40,000 per affected user if it is found to have broken its 20-year agreement with FTC. Cambridge Analytica, the British firm employed by the Trump campaign, said it deleted the data when it realised it had been collected in violation of Facebook’s terms of service.

The Cambridge Analytica revelations raise questions about the extent to which Facebook took adequate steps to protect customer data and whether users were fully aware that they were handing over their personal information. Sandy Parakilas, a former platform operations manager at Facebook, told The Guardian this week: “All of the data that left Facebook servers to developers could not be monitored by Facebook, so we had no idea what developers were doing with the data.” Critics of the company have also pointed to design changes that TechCrunch argued in 2012 encouraged users to “add apps on Facebook without realizing we’re granting those apps (and their creators) access to our personal information”.

Facebook’s latest bout of anxiety and what some people call “reputational damage” now dates back at least 18 months. By the end of the US presidential election campaign, its algorithms had ensured that the top fake stories in people’s news feeds were generating more engagement than the most popular real ones. Zuckerberg initially described the claim that Facebook had been instrumental in the victory of Donald Trump as a “pretty crazy idea”, only to recant. Having been scared by Twitter and enthusiastically pushing the idea that Facebook could be a news platform, he then ran in the opposite direction, insisting that its job was to allow people to share “personal moments”. At times, he looks like someone who cannot keep up even with himself.


Among the many voices calling for people to leave scandal-hit Facebook, one stands out: Brian Acton, the co-founder of messaging service WhatsApp, which Facebook now owns.

Facebook’s stock price is down more than 11% since last weekend’s reports that Cambridge Analytica, a right-leaning political consultancy, acquired and misused the personal data of tens of millions of Facebook users. The social network is now facing crackdowns from regulators in the U.S. and Europe, and an investor lawsuit over that share price slump.

Many people have pointed out that Cambridge Analytica didn’t use Facebook’s data in an unusual way: it wanted to influence people. But even before the latest scandal hit, Facebook was caught up in a furor over propaganda that might have influenced the 2016 U.S. election, and growing disquiet over its deliberately addictive and arguably divisive nature.

This mess was inevitable. Facebook has worked tirelessly to gather as much data on users as it could – and to profit from it.

Option Trade - Facebook Inc. (NASDAQ:FB) Puts

Tuesday, March 20, 2018

** OPTION TRADE: Buy the FB APRIL 20 2018 165.000 PUT at approximately $3.00. Place a pre-determined sell at $6.00.

Also include a protective stop loss of $1.20.

Facebook Inc. (NASDAQ:FB) was the worst-performing stock in the S&P 500 on Monday, posting its biggest one-day decline since March 2014.

This followed reports over the weekend that said political analytics firm Cambridge Analytica was able to collect data on 50 million people's profiles without their consent.

The firm, which has ties to the Trump campaign, allegedly grabbed a massive chunk of data from a professor’s research project and used it to help increase Trump’s popularity — a big violation of Facebook’s policies.

While FB initially downplayed the issue (just as it did with “fake news” and Russia’s influence on the election), it has since suspended Cambridge Analytica from its platform.

“Tech companies can and should do more to protect users, including giving users far more control over what data is collected and how that data is used,” said the Electronic Freedom Foundation in a statement. “That starts with meaningful transparency.”

Once you share something on any digital service, your personal information leaves your control. Cambridge Analytica serves as a stark reminder of that.

Heath Terry, lead internet research analyst at Goldman Sachs said, "It's going to be how they manage through this that will ultimately determine their long-term future."

"It certainly introduces a level of uncertainty that we haven't seen with Facebook before," said Heath Terry.

Terry explained that every fast-growing tech giant was likely to face a similar crisis, before singling out the so-called click fraud scandal which threatened Google's growth prospects in recent years.

"That's going to be the same here for Facebook. It's going to be how they manage through this that will ultimately determine their long term future," Terry said.


Ultimately there will be a lot more drama for Facebook before this situation is brought under control.