This Apple Supplier Could Hit Record Highs Next Week

Broadcom stock tends to perform well during short trading weeks

May 26, 2017 at 1:07 PM
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Apple supplier Broadcom Ltd (NASDAQ:AVGO) just touched a record high of $241.56 on Thursday. The chipmaker has rallied more than 57% in the past year, and more than doubled from its February 2016 lows. What's more, AVGO stock could be headed for even higher highs next week, if recent history is any indicator. Not only does Broadcom report earnings, but the shares tend to outperform during short trading weeks. Against this backdrop, both analysts and options buyers are betting bullishly on AVGO shares.

AVGO Stock Has Done Well After Earnings

Specifically, Broadcom will step into the earnings confessional after the close on Thursday, June 1. The company's earnings are typically well-received by shareholders, with AVGO stock moving higher the session after seven of its last eight earnings releases. Analysts certainly have high expectations for the security, which sports 23 out of 24 "buy" or better ratings, and just scored a pre-earnings price-target hike to $265 from $250 at Mizuho today. 

AVGO Options Traders Near a Bullish Extreme

Options traders are also upping the bullish ante on AVGO stock before next week's report. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open 3.65 AVGO calls for every put during the past two weeks. This ratio is higher than 97% of all others from the past year, pointing to a much healthier-than-usual appetite for long calls over puts on AVGO.

The weekly 6/9 252.50- and 267.50-strike calls have seen the biggest increases in open interest in the past two weeks. Digging deeper, it looks like most of the new positions are attributable to a bull call spread established last week, with the trader buying to open 5,500 252.50-strike calls, and selling to open an equal amount of the 267.50-strike calls. It appears the spread was established for a net debit of $1.37 per pair of contracts, putting breakeven on the trade at $253.87 (bought strike plus net debit).

Short Weeks Bode Well for AVGO Stock

As alluded to earlier, Broadcom has been one of the top 25 stocks to own during short trading weeks, going back to 2010. According to Schaeffer's Senior Quantitative Analyst Rocky White, the stock has averaged a 1.11% gain in short weeks, with a win rate of 62.1%. At AVGO stock's current price of $240.24, a 1.1% uptick would put the shares around $242.88 -- in new-high territory. Meanwhile, Broadcom shares have averaged a one-day post-earnings move of 5.2% in either direction, going back eight quarters. A 5.2% rally would put AVGO around $252.73 -- deeper into uncharted territory, but not high enough for the aforementioned spread strategist to profit. Perhaps they'd be better off honing in on this fellow Apple supplier instead? Only time will tell.

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