Buy calls to capitalize on good earnings and even-better upside

Earnings season may be winding down, but there��s plenty left on the schedule to chew on. Sure, most of the big names have been to the confessional. But tradable opportunities are plentiful. One that we like for this week is Qualcomm (NASDAQ:QCOM).

QCOM reports after the close on Wednesday, with analysts expecting earnings of 78 cents per share, a 14.7% increase from a year ago. That��s about half the growth rate the company has averaged over the past four quarters, so expectations are modest. And QCOM rarely misses an estimate. The last such miss came 11 quarters ago.

Performance after the recent reports has been solid, with the stock gaining ground after three of the past four reports. The only miss was a big one, though. It came last quarter when the shares dropped 10% in the week after reporting.

The shares have spent the past three months trading sideways between the $46 and $54 levels. Before that, they traded between $54 and $58 for three months. Currently, the stock is butting up against the top of its current range, with the 200-day moving average in play as resistance.

Sentiment toward QCOM is unquestionably optimistic. Short interest is low, options traders are playing calls heavily, and 35 of 43 covering analysts consider the shares a ��Buy.�� That��s a lot of enthusiasm that translates into high expectations.

But there��s reason for the optimism. QCOM is supplying chips for Apple��s (NASDAQ:AAPL) iPhone 4S, which has broken all sorts of sales records. Demand for 3G is surging in China, and analysts are raising their price forecasts.

There��s a case to be made for QCOM to pull back after earnings due to high optimism and technical resistance. But we��re seeing the glass half-full, expecting a solid earnings report and a better outlook based on Apple and China. The report should be enough to push the shares beyond technical resistance in the $54 level toward the 2011! high ju st below $60.

We��re recommending that you buy some more time with this play. QCOM may slip after earnings, but our longer-term bullishness should play out. Even if the stock pops after earnings, we would recommend hanging with the trade or taking half off and letting the rest run higher.

We��re also going in-the-money with the options to protect against a retreat. Buy the QCOM Jan ?50 Call for around five bucks.