Qualcomm (NASDAQ: QCOM - option chain) shares are rising today despite a weak earnings report this morning after the company agreed to pay $891 million to Broadcom (NASDAQ: BRCM) to dismiss all pending lawsuits between the two companies. The $891 settlement was not as high as the figure some analysts had feared QCOM would have had to pay BRCM. Plus, this dispute has been raging for quite some time with no end in sight, so a cessation of hostilities should be good for both companies. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on QCOM.QCOM opened this morning at $42.35. So far today the stock has hit a low of $42.30 and a high of $44.59. As of 11:40, QCOM is trading at $43.78, up $2.42 (5.8%). The chart for QCOM looks bearish and S&P gives QCOM a negative 2 STARS (out of 5) sell ranking.
For a bullish hedged play on this stock, I would consider a June bull-put credit spread below the $38 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 13.0% return in just two months as long as QCOM is above $38 at June expiration. American Express would have to fall by more than 13% before we would start to lose money. Learn more about this type of trade here.
QCOM has shown support around $39 recently.
Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in QCOM or BRCM.
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