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Dropping covered call on QCOM

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With the underlying stock of QCOM sitting just above our stopping point of $59.50, PremierMarkets.com has decided to drop coverage of the profiled sale of a June 65 covered call (AAOFM) from 05/23/01 at $6.50 today with the AAOFM offered at $2.05. This would result in a gain from the sale of the call. We will maintain our stop on the 1/2 position bullish play in QCOM shares at $59.50. Should the stock bounce off its bullish support trend at $60 to the $64-$65 level, we might look to write the covered call once again.

Qualcomm Chart - $1 box

Shares of QCOM have recently pulled right back into bullish support trend at $60 and today traded just above our stopping point of $59.50 at $59.99. Much like we did in a recently profiled trade in Merrill Lynch (NYSE:MER) we placed our stop just under a level we felt that shares of QCOM should find support on a pullback. Since we would drop coverage of QCOM should the stock trade $59.50 and close out coverage of the covered call, we're looking to try and capture the bulk of the gains from the covered call at current levels and look for shares of QCOM to get a bounce off of the bullish support trend. The longer-term trend (bullish support) currently has been pierced just as it was in May at the $56 level. In May, QCOM rallied from that trend nicely. With today's employment data being absorbed by the markets we feel the current gains in the covered calls should be captured here with a stop in the underlying security just below.

Using Qualcomm in the QQQs

Shares of QCOM carry weight in how the QQQs trade (up or down) and traders trading the QQQs should be monitoring QCOM here. A break lower will most likely have the QQQs trading lower and traders can act as they see fit in the QQQs. Should QCOM get a bounce from the $60 level, we'd expect the QQQs to also show upside movement.

Jeff Bailey
Senior Market Technician

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