Broadcom Puts Pop Ahead of Earnings

AVGO puts are trading at two times the average intraday pace today

Digital Content Manager
Sep 11, 2019 at 11:38 AM
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Broadcom Inc (NASDAQ:AVGO) stock is trading higher today, up 0.6% at $296.29, ahead of tomorrow's fiscal third-quarter earnings report from the semiconductor concern. The equity has had a good run on the charts of late, set to clock a six-day win streak today. With recent support from its 120-day moving average, the stock now boasts a roughly 17% year-to-date gain, and is set for its highest close in over a month. 

AVGO Sept 11

The brokerage bunch is optimistic toward AVGO, with 17 of the 22 in coverage calling the stock a "buy" or better. On the other hand, the 12-month consensus target price of $307.08 is only a slim 3% premium to current levels. 

Options traders have taken a more pessimistic stance, evidenced by AVGO's Schaeffer's put/call open interest ratio (SOIR) of 1.07, which sits in the top percentile of its annual range. This suggests short-term options players are much more put-heavy than usual toward the stock. This can be seen at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), too, where Broadcom's 10-day put/call volume ratio of 1.11 sits in the 84th percentile of its annual range. 

This bearish behavior has carried over into today's trading, with 5,500 puts exchanging hands so far -- two times the intraday average -- compared to 2,700 calls. It looks like a majority of these positions are being opened at the October 170 and 175 puts, followed by the weekly 9/27 170-strike and 175-strike puts. 

Looking at post-earnings moves from the past two years, returns for AVGO are split, with the equity's biggest move being an 8.2% pop after the company's mid-March earnings this year. This time around the options market is pricing in a one-day post-earnings move of 7.2%, regardless of direction, compared to an average post-earnings move of 4.1% over the past eight quarters.

 

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