Broadcom draws highly leveraged bet

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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 support.

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 uptrend.

The last earnings report on Feb. 1 missed expectations as costs rose. The next release is scheduled for after the close on April 26.




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.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.


This article appears in: Investing , Options

Referenced Stocks: BRCM

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