Qualcomm Falls On Heavy Options Volume

Qualcomm, Inc. QCOM is down more than 6.5% heading into the last hour of trading on Dec. 16 on heavy options volume.

What Happened: Currently the stock has traded more than 141,000 options on the day with over 94,000 calls and 46,000 puts (image above).

Today's 141,000+ options represent more than 15% of the total options as the stock had approximately 438,000 calls and 484,000 puts before the start of today's session.

On top of that, more than 31% of the options on the stock will be expiring tomorrow, Dec. 17, so there should be increased volatility to end the week and start the next.

Why It Matters: Any time you have more than a third of the options expiring in one day, it forces a lot of adjustments from options traders, either being forced to monetize the options (close them), roll them to the following month or adjust with hedges. That increase in option flows increases volatility as dealers have to increase their delta and gamma hedges.

Considering about half of the flows today are short-dated (expiring Dec. 17), this only increases the volatility as the short-term options are exposed to massive theta (time) decay, and will destabilize the market even further.

What's Next: With the stock now below the $180 strike, it is now into negative gamma territory, which means dealers will start trading with the market as it sells off. This will exacerbate the flows and increase volatility up and down. There is major support around the $175 strike, but if the stock were to lose this level, the next downside target for bears will be the $160 strike.

Photo: Courtesy of Qualcomm