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Calls look for Broadcom to bounce

Mike Yamamoto (mike.yamamoto@optionmonster.com)

Traders are betting on a rebound in Broadcom, which has been sliding since its earnings report last month.

optionMONSTER's Heat Seeker system showed heavy buying in the September 26 calls, where the largest blocks were bought for $0.64 and $0.65. More than 10,139 of the calls traded in volume that was double the previous open interest of 5,043, indicating that new positions were established.

These long calls lock in the price where traders can buy the stock no matter how far it might rise. But the contracts will rapidly lose value if BRCM doesn't move soon, and they could end up worthless upon expiration in mid-September. Yesterday's action follows bullish call buying last week in the January 25 strike. (See our Education section)

BRCM fell 2.39 percent yesterday to close at $25.29. The communications-chip maker gapped down from the $32 level and closed at $27 on July 24 after quarterly revenues missed estimates, and shares have continued to drift lower since.

Total BRCM option volume topped 31,000 contracts yesterday, 2.5 times its daily average for the last month. Overall calls outpaced puts by more than 3 to 1.

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