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Why trader is selling puts in Broadcom

Chris McKhann (chris.mckhann@optionmonster.com)

Broadcom ended last week at a new four-year closing low, but one long-term trade is looking for a floor in the stock.

The January 2015 20 puts topped Friday's option activity in the communications-chip maker. optionMONSTER systems show that 3,000 of those contracts were sold for the bid price of $1.43. The volume was 3 times the strike's previous open interest, so it is clearly a new position.

The put selling is a bet that BRCM will be above $20 by the time of that long-term expiration. If shares fall below that strike price, the trader will face the obligation to buy shares at that level. (See our Education section)

BRCM fell 0.91 percent on Friday to $26.06, its lowest close since July 2009. The stock has continued to decline after gapping down on its earnings report last week. Shares were above $34 less than a month ago.

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