One trader is taking advantage of the high prices in Broadcom
Our tracking systems detected the sale of 13,250 January 37 calls
for $2.21 yesterday against open interest of just 48 contracts. The
trade accounted for more than half the volume in the broadband-chip
Implied volatility in the stock is 38 percent, compared with its 33
percent historical volatility. This means that Broadcom's options
are pricing in a bigger propensity to move than the stock normally
demonstrates, so the investor sold calls to earn premium.
He or she probably
owns the shares
and is using the calls to manage their position. The investor is
now obligated to sell the stock if it goes back to $37, a level
where it hit resistance earlier in the month before dropping along
with the rest of the market.
BRCM fell 0.65 percent to $32.07 yesterday and is down more than 15
percent since the start of April. Its last two earnings reports
have been strong, but management has said that higher costs will
squeeze profit margins.
The stock has been trapped in a range since last spring, so
yesterday's trader is probably selling the calls to make some money
while waiting for the stock to pop. (See our
section for more
Overall option volume was quadruple the daily average.
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