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Despite boasting an impressive year-to-date gain of 32.2%, Broadcom Corporation (NASDAQ:BRCM) has spent much of the summer churning between $36.50 and $39.50. Against this backdrop, one experienced options trader on Friday forecast a longer-term churn for the stock by constructing a short strangle in the November series of options.
Specifically, one massive block of 10,000 November 44 calls was sold at $0.34 apiece, while a symmetrical block of November 34 puts was sold for $0.37 each, creating a net credit of $0.71 per pair of contracts. Open interest rose at both strikes over the weekend, making it safe to assume new positions were initiated.
Ideally, BRCM will settle somewhere between $34 and $44 at the close on Friday, Nov. 21, allowing both contracts to expire worthless, and the speculator to retain the initial credit collected as her full potential reward. However, she will still be able to profit as long as the stock stays between $33.29 and $44.71 (sold put less the net credit; sold call plus the net credit) through expiration. Losses, meanwhile, will begin to accumulate should BRCM perforate either one of these breakeven rails.
The options market seems optimistic that this spread strategist will be successful. At Friday's close, delta on the November 44 call was docked at 0.19, while delta on the November 34 put was perched at negative 0.16. Broadcom Corporation (NASDAQ:BRCM), meanwhile, settled last week at $39.21.