It's been a rough year so for Qualcomm but one trader is betting big that the stock will rebound – at least by early 2016.
Shares of the tech giant are down 3 percent over the last week, and are off 10 percent year-to-date. However, some traders are taking a bullish view of Qualcomm two weeks before it reports its earnings.
On Wednesday, when the stock's options volume was 1.5 times its daily average, one trader put on a large bet that Qualcomm will rally over 5 percent in the next nine months.
Specifically, a trader bought 20,000 contracts of the January 70-strike calls for $3.52 and paid for some of the trade by selling the same amount of the January 60-strike puts for $2.72, thus making the net cost 80 cents. Since each contract controls 100 shares, the trader is wagering $1.6 million that Qualcomm will trade above $70.80 by January.
A call gives the purchaser the right to buy a stock at a specific price on or before a set date while a put gives its owners the right to sell.
In this particular strategy, known as a risk reversal, the trader breaks even if Qualcomm is above $70.80. Below that price, the trader loses the $1.6 million in premium paid. And should the stock fall below $60 any time before January, the trader could be forced to buy 2 million shares of the stock at that level even if it trades cheaper in the market.