Options Trade 
QUALCOMM, Inc. (NASDAQ:QCOM) Puts
Friday, September 15, 2017

** OPTIONS TRADE: Buy the QCOM OCT 20 2017 50.000 PUT at approximately $0.70. Place a pre-determined sell at $1.40.

Note: No protective stop losses added -- but if you wish to do so make it $0.30.

Also 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

by Ian Harvey   

QUALCOMM, Inc. (NASDAQ:QCOM), a U.S. mobile chipset giant, continues to see its’ woes increase by the month. 

QCOM has had a very rough 2017 in which it lost more than 22% of its value. The reasons are very clear.

Qualcomm has been facing regulatory proceedings of late. The company continues to receive charges for unfair business practices and licensing royalty payments.

In May 2017, Qualcomm settled a licensing dispute with BlackBerry Limited BBRY by paying $940 million.

Earlier in December 2016, South Korea's regulatory authority for economic competition, Korea Fair Trade Commission ("KFTC"), imposed an administrative fine of approximately 1.03 trillion South Korean Won (approximately $865 million) on Qualcomm due to unfair business practices.

Meanwhile, the ongoing $1 billion lawsuit dispute with tech giant Apple Inc. AAPL continues to get bitter with time, which is badly affecting the company’s margins.

Apple decided to take issue with the fees that QCOM requires.

Qualcomm has tried to fight back by getting iPhone sales banned as well as forcing Apple’s suppliers to pay what is owed while the law suit is pending, which is probably not likely to happen.

Just recently, Bloomberg reported that a federal judge has sided with Apple. Qualcomm had tried to stop Apple from seeking similar lawsuits in other nations.

“A U.S district judge in San Diego rejected Qualcomm's (QCOM) appeal to force Apple (AAPL) to limit its legal claims to U.S soil and not seek similar lawsuits in China, Japan, Taiwan and the U.K., said, Bloomberg. Apple has said that Qualcomm is monopolizing the market on chips for wireless devices and is withholding $1B in retaliation for cooperation with South Korean regulators, added Bloomberg.”

Qualcomm also sought to reinstate royalty payments while the legal dispute was pending.

It means that Qualcomm will continue to miss out on much needed earnings while the dispute is ongoing; and Qualcomm’s operating cash flow will be greatly affected.

Additionally, Dan Loeb is now looking to bump his returns by making QCOM pay up for NXPI.

NXPI acquisition at $110 now that Dan Loeb has decided he wants a piece of the pie, is not likely to go through. Even before Dan Loeb bought its stake it was evident that QCOM was having trouble getting investors on board.

It has now extended its tender offer for the eighth time and will continue to do so by refusing to hand over information to the European regulators.

The number of shareholders willing to offer their NXPI shares now stands at below 7%. QCOM is currently uninvestable.

As well, in June 2017, the telecom regulatory body of the European Union, the European Commission (EC), launched a thorough investigation into the proposed acquisition. The EC will probe in-depth if the deal could lead to higher prices, exclusion of rival chipset suppliers and reduced innovation in the semiconductor industry.

Over the past month, shares of Qualcomm have declined 7.3% compared with the industry’s decline of 5.6%.

Also, the sales and Earnings Per Share (EPS) estimate for Qualcomm has moved down for the remaining quarters of 2017 and also for full-year 2017.

The sales growth for third-quarter 2017 and fourth-quarter 2017 is estimated to decelerate 6.5% and 1.0%, respectively. For 2017, sales are expected to drop 2.8%.

The EPS growth for third-quarter 2017 and fourth-quarter 2017 is estimated to decelerate 37.1% and 27%, respectively. For fiscal 2017, EPS is expected to drop 6.1%.

The downward estimate revisions reflect pessimism over prospects of this stock.

Qualcomm Incorporated’s 50-day moving average price is $52.23 and its 200-day moving average price is $55.16. The stock has a market cap of $76.00 billion, a price-to-earnings ratio of 19.72 and a beta of 1.29. Qualcomm Incorporated has a 12-month low of $48.92 and a 12-month high of $71.62.

Analysts and Hedge Funds Opinions

Northland Securities cut shares of Qualcomm from an “outperform” rating to a “market perform” rating and dropped their price objective for the stock from $75.00 to $62.50 in a research note on Wednesday, June 28th.

Several other analysts have also recently commented on the company…..

  • BMO Capital Markets reaffirmed a “market perform” rating and set a $54.00 price target on shares of Qualcomm in a research note on Monday, July 10th.
  • Zacks Investment Research raised shares of Qualcomm from a “sell” rating to a “hold” rating in a research note on Tuesday, August 8th.
  •  Rosenblatt Securities reaffirmed a “neutral” rating and set a $56.00 price target on shares of Qualcomm in a research note on Friday, June 30th.
  • Finally, Wells Fargo & Company reaffirmed an “outperform” rating on shares of Qualcomm in a research note on Monday, July 31st.

Reliance Trust Co. of Delaware trimmed its position in shares of Qualcomm Incorporated by 5.4% during the second quarter. The institutional investor owned 10,504 shares of the wireless technology company’s stock after selling 595 shares during the quarter. Reliance Trust Co. of Delaware’s holdings in QUALCOMM were worth $580,000.

In other news, EVP Michelle M. Sterling sold 4,740 shares of the company’s stock in a transaction on Monday, August 21st. The stock was sold at an average price of $51.88, for a total transaction of $245,911.20.

Also, President Derek K. Aberle sold 23,104 shares of the company’s stock in a transaction on Monday, July 10th. The stock was sold at an average price of $55.38, for a total value of $1,279,499.52.

In the last 90 days, insiders have sold 28,995 shares of company stock valued at $1,587,390.

Harvey’s Options Volatility Indicator

Summary

It remains a rough year for Qualcomm and its shareholders. Apple seems to be gaining ground as the law suit progresses. Meanwhile, Dan Loeb is now also attempting to get Qualcomm to pay up. It has been speculated that Qualcomm could end up adding $20 per share to the acquisition price or roughly $6.9 billion. Whether this will be paid in cash, stock or debt, remains to be seen. Regardless of the method of payment, it will not benefit current shareholders. Either the balance sheet will be strained or equity will be diluted.

This targeted negativity sets up a good short-term trade to the downside in Qualcomm, particularly after early September action has put the stock around a new 52-week low. In 2016, the stock briefly crossed under $45 and it isn’t unrealistic to expect it to be trading there again shortly.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

 

** OPTION TRADE: Buy the QCOM OCT 20 2017 50.000 PUT at approximately $0.70. Place a pre-determined sell at $1.40.

Note: No protective stop losses added -- but if you wish to do so make it $0.30.

 

”Success is simple. Do what's right, the right way, at the right time.”

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Options traders win because they are successful.



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