Qualcomm Inc (NASDAQ:QCOM) may be one of the biggest semiconductor companies in the business but its latest financial disclosure had investors ducking for cover. Although the actual fiscal first-quarter print was solid, QCOM stock fell heavily on lower-than-expected forward guidance, which seemingly reflected the challenges of rising competition. Subsequently, the smart money has prioritized downside volatility protection in the options market, leaving call options relatively cheap.
On paper, Qualcomm posted earnings per share of $3.50 on revenue of $12.25 billion, beating the consensus target of $3.15 and $12.22 billion, respectively. These figures also expanded upon the year-ago quarter’s results of earnings of $3.41 per share and a top-line print of $11.67 billion.
Unfortunately, investors were less enthused about the current quarter’s sales and earnings guidance, which saw the tech giant fall short of analysts’ consensus estimates. One of the biggest challenges appeared to stem from competitive pressures in the handset market, with Chinese OEMs slashing their forecasts. This dynamic forced Qualcomm to guide down expectations, contributing to the volatility in QCOM stock.
Not surprisingly, the latest results forced hedging activity in the options market. Specifically, volatility skew, which is a screener that identifies implied volatility (IV) — a stock’s potential kinetic output — across the strike price spectrum of a given options chain reveals a prioritization of downside insurance.
For example, for the March 20 expiration date, the curvature of the skew rises on both ends of the price spectrum, with put IV priced higher than calls. This setup suggests that the main theme among smart money traders is to protect against additional potential downside volatility, particularly with mechanical shorts via deep in-the-money (ITM) puts.
While the hedging activity is more than understandable given that QCOM stock is now down 19% on a year-to-date basis, it has also made bullish expression through call options relatively cheap. If there’s a legitimate reason to consider going long QCOM, it could be a legitimate discount.
Laying Out The Trading Parameters For QCOM Stock
While we may have an understanding of the general …