Broadcom Corporation (BRCM) Option Bull Eyes Multi-Year Highs

Broadcom Corporation came within a chip-shot of notching a three-year peak today

by Karee Venema

Published on Nov 3, 2014 at 10:58 AM
Updated on Apr 20, 2015 at 5:09 PM

Broadcom Corporation (NASDAQ:BRCM) came within a nickel of taking out Friday's three-year high of $42.38 this morning, but was last seen hovering right around breakeven at $41.86. The initial move higher sparked a rush of call activity in the equity's options pits, with most of the volume coming at the hands of one speculator who set her sights on a rally into year's end.

Taking a quick step back, calls are trading at eight times what's typically seen at this point in the day, and are outpacing puts by a 38-to-1 margin. Almost all of the action occurred when two blocks of December 42 calls totaling 10,000 contracts were bought to open at a volume-weighted average price (VWAP) of $1.52. Based on the average entry price, breakeven for this call buyer at expiration is $43.52 (strike plus VWAP) -- territory not charted by the security since February 2011.

Also of note, these two large lots traded at the same time as a block of 5,000 in-the-money January 2015 40-strike calls, which were seemingly sold to close. Therefore, it's possible this trader used the premium collected in this transaction to help fund the purchase of the December 42 calls, expecting BRCM to notch a fresh three-year high by the close on Friday, Dec. 19 -- when December-dated options expire.

Today's call-skewed session highlights a shift in sentiment that's been occurring in recent weeks, amid Broadcom Corporation's (NASDAQ:BRCM) 21% surge off its mid-October low of $34.50. In fact, over the past two weeks, BRCM's 20-day call/put volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) has grown to 3.08 from 2.04, signaling an increased appetite for long calls over puts.

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