Qualcomm planning big buyback, options trade suggests

After a nasty selloff for much of the week, semiconductor stocks managed to bounce from their lows. And now some traders are taking bets that Qualcomm, one of the biggest chip stocks, will rally sharply within two weeks.

While Qualcomm shares traded lower on Thursday, some traders began making bullish bets in the options market. In fact, call volume outnumbered puts by a 2-to-1 ratio. A call is a bullish wager giving the purchaser the right to buy a stock at a set price on specific date. Puts give its purchasers the right to sell the stock.

In one noteworthy transaction, a trader placed a bullish bet that Qualcomm will rally nearly 5 percent over the coming 14 days. Specifically, the trader bought 5,000 calls with a 70-strike expiring on April 10 for 22 cents.

That means the trader wagered $110,000 that Qualcomm will close at $70.22 or almost 5 percent higher in the next two weeks.

According to Dan Nathan, founder of RiskReversal.com, this trade may miss Qualcomm's scheduled earnings release on April 22 but it may have been done to take advantage of any accelerated buybacks with prices now at lower levels. Three weeks ago, the company announced it will be buying $10 billion worth of shares over the next 12 months and said it raised its dividend by 14 percent.

Qualcomm signage and a shadow of CEO Steve Mollenkopf
Getty Images
Qualcomm signage and a shadow of CEO Steve Mollenkopf

Read MoreQualcomm announces $15B buyback, raises dividend 14%

"If you're looking to kind of leverage an existing long position that you have, this is one way to look out of the money and look for dollar-cheap calls in the name," Nathan said. "If you have that 5 percent move, you have a lot of leverage to the upside."

Still, the stock has woefully underperformed the overall tech sector for some time. Since this time last year, Qualcomm's stock is down 15 percent while the Nasdaq composite and the PHLX semiconductor indexes are both up 17 percent.

And although Qualcomm shares traded $70.22 as recently as Monday, Nathan sees the trader's relatively low cost for the April call options as indication that the market is still negative on the stock.

"You have to be very careful," he warned. "The options market is only saying about a 10 percent chance that these calls are in the money."

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  • Melissa Lee

    Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

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