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Bullish Speculation Heats Up on Broadcom

BRCM attracts the attention of call buyers

by 11/13/2012 11:57 AM
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Semiconductor stock Broadcom Corporation (NASDAQ:BRCM - 30.77) has been targeted by call buyers over the last week, according to data from the major options exchanges. During the past five sessions, speculators on the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE) have bought to open 7,275 calls on BRCM, easily outnumbering the 795 puts that were purchased during this same time frame. The resulting call/put volume ratio of 9.15 highlights a strong preference for bullishly oriented options on the chip stock.

The shares now sport a 10-day call/put volume ratio of 3.44 on the ISE, CBOE, and NASDAQ OMX PHLX (PHLX). This ratio ranks higher than 66% of other such readings taken during the past year, suggesting that options traders have purchased calls over puts at an accelerated pace in recent weeks.

Elsewhere, short interest on BRCM has been ticking higher. The number of shares sold short rose by 5.7% during the most recent reporting period, although these bearish bets account for a relatively slim 1.3% of the stock's float. Nevertheless, it's possible that this new crop of BRCM bears may have been partially responsible for the recent uptick in buy-to-open call volume, as bullish options can be used to hedge shorted shares.

Technically speaking, BRCM is a laggard. The security has shed roughly 10.5% of its value over the past 52 weeks, and is now trading well below double-barreled resistance at its 10-day and 20-day moving averages. These formerly supportive trendlines have pressured the stock lower since late September.

 Daily Chart of BRCM since September 2012 With 10-Day and 20-Day Moving Averages

What's more, the preference for call options on BRCM could actually exacerbate the stock's technical woes. The out-of-the-money November 34 and 35 strikes carry a combined total of 18,347 contracts in residence, all of which are due to expire at the end of this week. Going forward, an unwinding of the hedges related to these calls could create a steady headwind for the tech issue.


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