Follow Up to Trade Alert - (QCOM) January 29, 2015
As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price. This is your chance to ?look over? John Thomas? shoulder as he gives you unparalleled insight on major world financial trends BEFORE they happen.
Follow Up to Trade Alert - (QCOMM) UPDATE
Sell the QUALCOMM (QCOM) February, 2015 $75-$80 in-the-money bear put spread at $4.90 or best
Closing Trade
1-29-2015
expiration date: February 20, 2015
Portfolio weighting: 10%
Number of Contracts = 25 contracts
You can SELL the QUALCOMM (QCOM) February, 2015 $75-$80 in-the-money bear put spread anywhere in the $4.70 to $4.90 range and lock in your second home run of the year (the first one was your short position in the Euro).
If you are short the stock outright, cover here as fast as you can.
Keep in mind that the options market is highly illiquid now, so don?t hold me to these prices. They are ballpark estimates, at best.
We are so deep-in-the-money with the QUALCOMM (QCOM) February, 2015 $75-$80 bear put spread that the liquidity for these options will be poor. You may have to experiment as to where the real bid is, starting high, and then moving down incrementally if you don?t get done.
Worst case, you can just run this into expiration and avoid paying the extra commission. It is safe to say that you can market this one in the ?WIN? column.
It seems that the harder I work, the luckier I get.
Last week I made a bet that companies with a high share of international business would be punished severely during earnings season.
Specifically, I picked QUALCOMM (QCOM), the San Diego based maker of processors for cell phones, tablets, and laptops, because it had the highest percentage of foreign earnings among the S&P 500.
Three days later, after years of dawdling, the European Central Bank announced a particularly aggressive form of quantitative easing that sent the Euro crashing. You might as well have sent a torpedo directly into QUALCOMM?s bottom line.
The company?s Q4 earnings report, announced after the Tuesday close, confirmed my worst fears. While the earnings held up surprisingly well, the second half guidance was downright Apocalyptic.
The stock immediately gapped down to $65 in the aftermarket, off some 8%, in a heartbeat.
Foreign earnings are a great place to hide when the greenback is soggy. It is a terrible place to be when the buck is moving from strength to strength, as it has for the past eight months.
It turns out that there is much more that is wrong under the hood at QUALCOMM than the recent collapse of the Euro and the Yen.
Much of the meteoric growth of Apple?s (AAPL) iPhone 6 sales in recent months has been at the expense of Samsung and other competitors. I hate to say ?I told you so,? but I have been predicting this all along.
While QUALCOMM sells to both companies, particularly its Snapdragon 800 quadcore processor, it gets a lesser share of the profits on its sales to Apple. QUALCOMM is therefore, effectively, an indirect short position in Apple.
Oops!
I think you can take QUALCOMM?s woeful stock performance today as a warning that there is more suffering to come on the foreign earnings front at by other companies yet to report.
For more depth on this, please read yesterday?s piece on ?The Unintended Consequences of the Euro Crash? by clicking here.
As for the happy holders of my recommended QUALCOMM (QCOM) February, 2015 $75-$80 in-the-money bear put spread, good for you! You have just made a nearly instant 2.25% profit on your total portfolio in a mere seven trading days. That works out to a gain of 22% on this single position.
There is no point in running this position the remaining three weeks into the February 20 expiration, as you have already reaped 95% of the potential profit. Better to free up the cash to roll into a new position, while simultaneously reducing your risk.
Or, you could simply take a long vacation from the miserable, unforgiving market.
The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you. The difference between the bid and the offer on these deep in-the-money spread trades can be enormous.
Don?t execute the legs individually or you will end up losing much of your profit. Spread pricing can be very volatile on expiration months farther out.
Here are the specific trades you need to execute this position:
Sell 25 February, 2015 (QCOM) $80 puts at?????$15.00
Buy to Cover short 25 February, 2015 (QCOM) $75 puts at?$10.10
Net Cost:??????????????????.....$4.90
Potential Profit: $4.90 - $4.05 = $0.85
(25 X 100 X $0.85) = $2,125 or 2.13% profit for the notional $100,000 portfolio.
