Bearish Options Prices Implode as Broadcom Bounces

AVGO shares recently fell on reports that Apple cut its iPhone X production target

Managing Editor
Jan 31, 2018 at 9:49 AM
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Apple supplier and semiconductor stock Broadcom Ltd (NASDAQ:AVGO) is surging this morning, after the company narrowed its fiscal first-quarter guidance. Though not tentatively slated to report until Feb. 27, AVGO said it now expects earnings of $5.10 per share -- versus the consensus estimate of $4.95 per share -- and revenue to range from $5.30 billion and $5.35 billion, with the low end in line with analysts' forecast. In response, Broadcom stock has skyrocketed 4.7% to trade at $252.23.

From a broader prospective, AVGO has outperformed over the past year, up more than 26%. However, over the past three months, the shares are down more than 3%, and most recently took a hit following reports that Apple (AAPL) lowered its iPhone X production target, sending the stock on a rare trip below its 200-day moving average. Today's pop, though, has the equity back above this trendline.

In the options pits, sentiment has been unusually bearish. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), Broadcom stock's 10-day put/call volume ratio of 0.89 ranks in the 91st percentile of its annual range, meaning puts have been bought relative to calls during the past two weeks.

Those currently purchasing premium on short-term puts are paying for lower volatility expectations, compared to calls. Broadcom's 30-day implied volatility skew of negative 4.0% ranks below 99% of all comparable readings taken in the past year.


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