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Call Buyers Converge On Broadcom

BRCM traders are targeting front-month calls

by 12/6/2012 10:43 AM
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Option traders have grown increasingly bullish toward Broadcom Corporation (NASDAQ:BRCM - 32.91), as evidenced by the latest data from the major options exchanges. Plus, the semiconductor concern has already seen roughly 9,700 calls cross the tape so far today -- about three times its average intraday call activity.

During the past two weeks, speculators have purchased nearly seven BRCM calls for every put on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), resulting in a 10-day call/put volume ratio of 6.72. What's more, this reading registers in the 94th percentile of its 52-week range, suggesting option buyers have initiated bullish bets over bearish at a near annual-high clip.

As a result, the security sports a Schaeffer's put/call open interest ratio (SOIR) of 0.52, indicating that calls nearly double puts among options expiring within three months. Even more telling, this SOIR sits just four percentage points from a 12-month nadir, implying that near-term options players have rarely been more call-skewed during the past year.

In the front-month series, the December 32 strike is most popular among call traders, with more than 22,100 contracts in residence. In fact, BRCM has already seen more than 3,700 December 32 calls change hands so far today -- mostly at the ask price, suggesting they were bought. Assuming the calls are being purchased to open, the buyers are expecting BRCM to surmount the $33.36 level (strike plus volume-weighted average price of $1.36) within the next couple of weeks.

Technically speaking, this goal isn't that far out of reach. The shares of BRCM were last seen 1.8% higher to flirt with the $32.91 level -- and trade north of their 50-day moving average -- after the semiconductor concern lifted its fourth-quarter sales guidance to the high end of its anticipated range, citing solid wireless sales. The company now expects revenue of $2 billion to $2.1 billion, compared to previous guidance of $1.95 billion to $2.1 billion.

Daily Chart of BRCM since September 2012 With 50-Day Moving Average


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