Broadcom Ltd (AVGO) Options Traders Brace for a Post-Earnings Plunge

Broadcom Ltd (NASDAQ:AVGO) has historically done well post-earnings, but put buying has been accelerating in recent weeks

Aug 30, 2016 at 11:09 AM
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Broadcom Ltd (NASDAQ:AVGO) has turned in a stellar post-earnings performance over the past eight quarters, averaging a gain of 8% in the session subsequent to reporting. This time around, the options market is pricing in a roughly similar swing for AVGO stock -- regardless of direction. However, it seems options traders are bracing for Broadcom's post-earnings price action to resolve to the downside, after the chipmaker takes its turn in the earnings confessional Thursday evening.

At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for instance, BRCM's 10-day put/call volume ratio has risen to 0.97 from 0.60 over the past two weeks. Plus, the current ratio ranks higher than 68% of all comparable readings taken in the past year, meaning puts have been bought to open over calls at a faster-than-usual clip.

Drilling down, AVGO's September 150 put has seen the biggest rise in open interest over this time frame, with more than 2,400 contracts added. According to the major options exchanges, it looks as if some of this activity has been of the buy-to-open kind, meaning put buyers expect AVGO stock to sink below the strike by front-month options expiration at the close on Friday, Sept. 16.

Put volume is accelerated again today, with puts crossing at two times what's typically seen at this point in the day. The stock's September 155 put is most active, where it looks like new positions are being purchased. As a point of reference, AVGO hasn't seen the south side of $155 -- or $150, for that matter -- since early July.

As such, it's entirely possible that this recent rush toward long puts, specifically those that are out of the money, is a result of shareholders protecting their paper profits against any post-earnings downside. In fact, AVGO has been a standout on the charts -- up 22% year-to-date to trade at $177.16.

What's more, the shares hit a record peak of $179.42 earlier, after receiving a fresh batch of bullish brokerage notes. Specifically, Citigroup resumed coverage on Broadcom Ltd (NASDAQ:AVGO) with a "buy" rating and a bold $205 price target, while Credit Suisse raised its price target on AVGO to $200.

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