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Qualcomm Options Fly as Investors Chase Long-Lost Romance

Since May,


(QCOM) - Get Report

shares have had little of the luster that made the stock the

Nasdaq Composite Index's

1999 darling.

But recently, some options traders had begun buying Qualcomm call options because they believed the firm and the sector had spent an ample amount of time in the market's woodshed.

And today's pop in Qualcomm shares is rewarding them for their confidence is a big way, while attracting more volume in October contracts from believers.

"It think telecom has bottomed out," says money manager David Schultz of

Summit Capital Holdings

, who is long Qualcomm,




Telefonos de Mexico



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Qualcomm's shares were running -- up 7.5% to 62.50 at midday -- based on reports that China would be selecting the company's CDMA standard for cellular communications, and the prices of its the short-term options were reflecting some of that same froth.

The October 65 calls traded 750 contracts and jumped 1 15/16 ($193.75) to 4 5/8 ($462.50). The October 70 calls traded more than 1,500 contract, volume that drove the price up 1 5/16 ($131.25) to 3 ($300).

Schultz says the short-term options looked expensive but that some traders who wanted to own Qualcomm would be wise to sell put options, a trade that would obligate them to buy Qualcomm shares at the strike price of the options they sold.

While the October 70 call action could have been some investors selling calls against the chance Qualcomm would follow through on today's rally, some traders went for longer-term options that are usually used as proxies for the actual stock.

More than 1,000 call contracts expiring in January 2002 changed hands in morning action. The 2002 January 70 calls were trading for around 19 1/2 ($1,950). Long-term options, called LEAPS, are used by investors who want to get the same appreciation as the stock without the capital outlay of buying the shares.

One LEAPS option -- like standard options -- is worth 100 shares of the underlying stock. And while LEAPS are more expensive than shorter-term options, they have become popular with individual investors seeking long-term positions.

Investors and analysts, Schultz says, "are willing to start playing to bottom of a trading range" especially in big name stocks such as Qualcomm and




A 10,000 contract block of



October 50 call options traded this morning as the Internet incubator's shares rose 1.81 to 41.44.

The October 50 calls seemed to be part of a buy-write strategy in which the investor simultaneously buys shares and sells call options to defray the cost of the stock purchase.

The call seller is obligated to deliver shares of CMGI by the third Friday of October if the stock is trading above 50. The seller also took in about 2 1/4 ($225) for each contract sold.

That kind of trade shows a hesitant optimism for CMGI's shares, which have fallen from the low-60s since July.