Broadcom has pulled back to a key level, and one investor has
opened highly leveraged strategy in hope of a rebound.
optionMONSTER's Heat Seeker tracking system detected the purchase
of 5,000 May 41 calls for $1.74. At the same time, they sold
equal-sized blocks in the May 38 puts for $1.14 and the May 45
calls for $0.48.
Selling both calls and puts reduced the investor's cost basis to
just $0.12, which will let the trader earn 3,200 percent profit if
the chip maker rebounds to $45 by expiration. Aside from the
initial $0.12 outlay, the position won't lose money as long as the
stock remains above $38.
Investors might feel comfortable taking the risk because BRCM
peaked around that level last July and then gapped above it in
October. As a result, some chart watchers may expect it to provide
BRCM fell 0.25 percent to $40.42 yesterday. It has been climbing
steadily since the broader market bottomed out two years ago, but
is down 15 percent since mid-January.
The stock has also pulled back to its 200-day moving average, which
could also make some traders think that it remains in a longer-term
The last earnings report on Feb. 1 missed expectations as costs
rose. The next release is scheduled for after the close on April
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.
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