QCOM Call Friday Was Right On, But Little To Work With So Far Today…
Thus far, we haven’t seen
much in the way of the much rumored Fed rate cut, but DJIA and Nasdaq stocks
seem to be holding pretty well (as of 11:25 am CST). In particular, we’d
like to call attention to our call Friday about the Qualcomm
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PowerRating) option volume. QCOM was just a couple dollars off its
lows of 50 1/8 when we said, “If you are looking for likely turnaround
scenarios, you may want to take a look at Microsoft
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PowerRating), QCOM and to a lesser extent, Merck
& Co. Inc.
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PowerRating). MSFT is up 1/2 (as of 12:45 pm) and QCOM,
down 2 1/2 but well off Friday’s lows. These ratios tell us that either the
institutions are tired of selling in these two issues, or that given their
relationship to the rest of the market, they are fairly priced. Especially in
the case of QCOM, it is rare to see a balanced dollar-weighted put/call ratio
on such a down day. If you were looking to catch a falling knife, at least the
numbers are telling us that this might be the one.”
All three issues we cited had nice recoveries ahead of the Fed rumor rally,
but QCOM was clearly the big winner, running $10 from our call until the
close. Today, we continue to see positive money flow into QCOM and MSFT, but
nothing as serious as Friday’s dollar-weighted strength.
As far as additional dollar-weighted put/call movement, initially, we thought
there might be something going on in
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PowerRating), but the ratio was too dramatic to
be real. Indeed, the volume in the puts was, yet again, market makers flipping
deep-in-the-money puts to get the interest on the deep puts and on the short
stock. Since the puts were the January 100 & 110s, the interest is being
paid on an $82 & $92 put amounts to about $.014 per share, per day. In
other words, since market makers get both short stock interest and short
option interest, the January 2002 short put spread could pay them $4.20 per
share, or $420 per short option. With an open interest of 3582 for the Jan 110
puts, that could be worth up to $1.5 million!
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(1010WallStreet.com
has licensed the use of Hamzei Analytics LLC proprietary options analytics)