Bull Notes Galore as Apple Supplier Defies Tech Sell-Off

Options traders are targeting AVGO with calls this morning

Managing Editor
Sep 4, 2020 at 10:37 AM
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All eyes are on Broadcom Inc (NASDAQ:AVGO) this morning, after the Apple supplier stepped into the earnings confessional post-close as tech stocks crumbled. Last night, Broadcom reported adjusted fiscal third-quarter earnings of $5.40 per share on $5.82 billion in revenue, both of which topped Wall Street estimates. The company also upped its current-quarter outlook, thanks to boosted demand for 5G and data-center chips.

In response, analysts have rushed to adjust their price targets. At least 15 brokerages have issued price-target hikes, the highest coming from BofA Global Research to $450 from $400. Meanwhile, Piper Sandler praised Broadcom for showing "meaningful growth as it enters the heat of the wireless ramp over the next nine to 12 months."

All of this action has AVGO up 1.5% to trade at $357.46 at last check, shaking off the profit-slashing tech-selloff. The stock scored a record high of $378.96 on Wednesday, and despite yesterday's pullback, it has more than doubled off its March 18 four-year lows of $155.67. 

As alluded to earlier this week, call options are incredibly popular. Broadcom's Schaeffer's put/call open interest ratio (SOIR) of 0.91 sits in the low 2nd percentile of its annual range, indicating that near-term traders have rarely been more call biased in the past 12 months. 

Today is more of the same. Calls are trading at six times the average intraday amount just a half hour into today's trading. Leading the charge is the September 400 call, while new positions are being opened at the weekly 9/4 375-strike call. Buyers of the latter are banking on these gains holding through the end of the day, when contracts expire.

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