It was a week of good news for Qualcomm (QCOM, $54.45, up $2.02) as the company reported earnings that were slightly ahead of Wall Street’s expectations. The icing on the cake was the fact that the company also settled its ongoing lawsuit against Nokia (NOK, $28.13, up $0.84).

The company had delayed its earnings announcement at the last minute on Wednesday and was suppose to report after the market closed. Once the delay came, speculation was in full-force until the Nokia deal was announced. As far as earnings, Qualcomm reported revenue of $2.8 billion and $0.55 a share. Wall Street had expected $2.71 billion and 55 cents. Qualcomm raised guidance in June and they were right on target. The earnings report alone may have lifted the stock on Thursday but it was the Noka news that sent the stock soaring.

Under the terms of the agreement, Nokia basically has a 15-year license to all of Qualcomm’s patents for use in Nokia’s infrastructure equipment. Nokia has also agreed not to use any of its patents directly against Qualcomm which paves the way for Qualcomm to integrate Nokia’s technology into its chipsets that are used in wireless phones.

It was a huge win/win for both companies but Qualcomm was the biggest winner. The rumor mill is already churning that Nokia could be using Qualcomm chips down the road. The old saying, “if you can’t beat ’em, join ’em”, would seem to fit Nokia if that were to happen and it looks like things could be headed that way.

On July 2, we made up a Telecom Watch List and Qualcomm was by far the best one on the list and the only one I liked. At the time, I mentioned the stock was setting new 52-week highs in mid-June and was the best positioned to take advantage of the surging demand for smart-phones. Apple (AAPL, $162.12, up $3.09) and Research in Motion (RIMM, $117.43, up $2.88) may be leading the charge when it comes to smart-phones but Qualcomm and its recent stock gains are clearly in the lead over the past month.

The rally in Qualcomm has put the October 50 calls (AAOJJ, $6.55, up $1.25) I mentioned at $2.05 well in-the-money. They are now up over 200% and I told you then that they could be a steal four months from now. Well, it only took a month and hopefully Qualcomm can continue its momentum a little while longer. The stock could be setting up for a run to $60 and getting off to a good start today would second that notion.

Side Note: I also mentioned AT&T (T, $31.40, down $0.30) on July 2 when it was trading at $33. I didn’t like it for a call option trade at the time because the stock was hitting 52-week lows. Guess what. It still is. We were watching the October 35 calls (TJG, $0.50, down $0.10) and I said if they got below a $1.00 then we would look at them again. Well, we’re looking at them again and I still don’t like a trade.

By waiting a month and noticing AT&T was in a downtrend, we just bought ourselves two more months of time premium. The January 35 calls (TAG, $1.13, down $0.11) are now approaching our old entry price on the October 35 calls of $1.00. However, I’m not ready to swim with the sharks just yet and it may be longer then expected for AT&T to rebound. The stock has been getting hit with a slew of downgrades and its latest earnings showed some serious weakness in their wireline business. That means AT&T is losing customers and they could be losing them at an accelerated pace. Hold off until further notice.

Rick Rouse
Rick@OptionsMentoring.com