Trade Update $QCOM – Taking Profits After Earnings

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Trade Update Nov 15th, 2012 at 11:14 am:  I initiated the QCOM calendar earlier in the week to take advantage of the Nov / Jan13 implied vol spread.  The stock actually rose more than I expected, through the 61-61.5 resistance, but the trade is a winner because of the volatility crush in November.  I’m going to take my profits here on general market weakness and move on to other trades, since I’m simply long a put at this point.

Action: Sold QCOM ($61.35)  Nov / Jan13 57.5 put calendar at $1.14 for a $0.10 gain

-Bought 1 Nov 57.5 put for 0.02

-Sold 1 Jan13 57.5 put at 1.16

 


Original Post Nov 5th, 2012 at 1:41pm:  New Trade $QCOM: From Decisive to Divisive

 

Dan is our resident technology expert.  He’s traded the sector for more than a decade, and knows each sub-sector inside out.  When I venture into the technology names, I usually do it with a volatility bent in mind, rather than a strong fundamental view.  Because traders like Dan would eat my lunch on any fundamental trade.

So when I took a look at QCOM options today, I wasn’t expecting to initiate any new trades.  But lo and behold, Jan13 stuck out like a sore thumb, just cheaper than it should be priced.  Here is a chart of 30 day implied vol (red line) vs. 90 day implied vol (green line) over the last 2 years, to illustrate:

 

Chart Courtesy of LiveVolPro

 

30 day and 90 day implied volatility naturally rallies into earnings events (denoted by the blue ‘E’ box in the chart).  But what’s surprising about the current move in implied volatility is how much more 30 day implied vol has rallied relative to 90 day implied volatility.  That spread is the largest it has been in the past 2 years.

This might make sense if implied volatility as a whole was abnormally high, since you are taking more risk buying a 90 day option (in premium and volatility terms) than a 30 day option.  However, 90 day implied volatility in the chart above (green line) is still at the lower end of its 2 year range.  Granted, realized volatility is also near the low end of its 2 year range, shown here (30 day realized volatility):  

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