Broadcom Ltd, Ambarella Inc Provoke Pre-Earnings Options Traders

Broadcom Ltd (NASDAQ:AVGO) and Ambarella Inc (NASDAQ:AMBA) options are popular ahead of earnings

Josh Selway
Jun 2, 2016 at 2:52 PM
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Options volume is accelerated today on semiconductor stocks Broadcom Ltd (NASDAQ:AVGO) and Ambarella Inc (NASDAQ:AMBA), as the companies prepare to report quarterly earnings after the close today. Let's take a quick look at how options traders are playing AVGO and AMBA, and how the semiconductor stocks have fared following previous earnings releases. 

AVGO's options volume today lands in the 99th percentile of its annual range, putting it at six times the intraday average, as traders place bets on both sides of the aisle. The most popular AVGO option is the weekly 6/3 160-strike call. It looks as though a block of 2,500 contracts was bought to open here, possibly as part of a larger spread strategy. Meanwhile, bearish traders appear to be buying to open the weekly 6/3 140-strike put, betting on AVGO to fall below $140 by the end of the week -- a level that contained the stock's pullback last month. 

In the weeks leading up to earnings, AVGO options trading has taken an unusually bullish turn. The stock's 10-day call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) has jumped from 0.88 to 2.07 during the past three weeks, putting the current ratio in the 75th annual percentile. 

When looking back at previous post-earnings reactions, this bullish bias is understandable. For instance, Broadcom Ltd (NASDAQ:AVGO) has moved higher in the session after its past seven earnings releases. Nonetheless, AVGO was down 0.3% at $154.29 at last check, despite sector-wide tailwinds

As for AMBA, today's options trading has been highlighted by a four-legged spread totaling 6,000 contracts, which could be the work of an iron condor player. Outside of this trade, the weekly 6/3 series is also popular, with what looks like buy-to-open activity at the 35-strike put and 45-strike call. 

Generally speaking, short-term AMBA options traders have been unusually call-skewed. This is according to the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.54, which rests just 2 percentage points from a 12-month low. 

As for historical post-earnings results, Ambarella Inc (NASDAQ:AMBA) has been disappointing, with the stock posting losing sessions following the past three earnings releases. Today, though, AMBA is up 2.4% at $42.55, as the shares seem to have found a home atop their 100-day moving average. 

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