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In Friday's options pits, Broadcom Corporation (NASDAQ:BRCM) calls traded at about their typical pace, as roughly 21,000 contracts crossed the tape. Most active by a mile was the November 30 call, where 10,304 contracts changed hands -- 99% at the ask price, suggesting they were purchased -- and nearly all translated into open interest over the weekend, meaning they were newly minted. Data from the International Securities Exchange (ISE) confirms this theory.
Digging deeper, we notice a block of 9,280 contracts bought to open at the aforementioned strike, for $0.31 each. In order for this speculator to profit, he needs BRCM shares to ascend from their current perch at $26.39 past $30.31, or the strike price plus the premium paid, by November options expiration. In other words, the trader bet on the underlying gaining nearly 15% during the next six weeks. If the stock stalls south of the strike, however, the most he can lose is his initial cash outlay.
One factor that must be considered is Broadcom's third-quarter earnings report, which is scheduled for release after the market closes on Oct. 22. The average analyst estimate has the semiconductor name booking a profit of 69 cents per share, or a dime less than its year-ago result. Although BRCM has topped analysts' consensus bottom-line estimate for each of the past eight quarters, it slides an average of about 0.4% in the week after issuing its report. That average was recently dragged lower by a 12.5% one-week drop after BRCM's July 23 earnings report, wherein the tech concern fell short of revenue expectations and offered a shaky third-quarter view.
On the charts, Broadcom Corporation (NASDAQ:BRCM) has been a major laggard for some time now. Year-to-date, the shares are off over 20%. Keeping that in mind -- as well as the company's short interest level, which spiked close to 35% during the past two reporting periods -- it's possible Friday's seemingly bullish traders were actually buying the calls to hedge their short stock positions.
As a final side note, it appears that BRCM's short-term options are getting more expensive. At last check, the stock's 30-day, at-the-money implied volatility was up 2.8 percentage points, or 9.1%, to 33.9%. Just two weeks ago, that same figure registered at 25.8%.
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