Stocks quoted in this article:
Just a day after its ex-dividend date, Broadcom Corporation (NASDAQ:BRCM) is experiencing a major uptick in trading volume. So far today, roughly 54,000 options have changed hands, which is more than three times the stock's typical volume at this point into an average session. The flurry of activity has implied volatility (IV) surging, as well; specifically, BRCM's 30-day at-the-money IV is up 3.9 percentage points, or 13.5%, to 32.9%.
By far the most popular option in Broadcom's options pits is the September 26 call, where over 17,500 contracts have traded -- about two-thirds at the ask price, suggesting they were purchased. IV has risen on the option, as well, indicating that new bullish bets have been initiated. Data from the International Securities Exchange (ISE), and commentary from Trade-Alert, together confirm our theory.
The volume-weighted average price (VWAP) for the trades is $0.44, which means speculators are banking on BRCM to advance past $26.44 (strike price plus VWAP) by front-month options expiration, from its current perch at $25.28. Gains on the play are potentially unlimited past that breakeven mark, as they're based on the price of the underlying. On the other hand, the most at stake is the premium paid to initiate the long call position.
That downside is limited is especially comforting in the case of Broadcom Corporation (NASDAQ:BRCM). The communication-technology concern is off nearly 24% year-to-date, and over the past three months, has lagged behind the broader S&P 500 Index (SPX) by about 30 percentage points.