Broadcom Corp. (NASDAQ: BRCM) shares are trading higher after Friday evening saw a statement from an International Trade Commission judge that recommended the end of an investigation into a Qualcomm (NASDAQ: QCOM) - Nokia (NYSE: NOK) dispute. Broadcom has a similar dispute and while some phones were banned in the US because of this issue, BRCM received a stay while appeals are heard. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on BRCM.The stock has climbed sharply over the past two months, hitting a one-year high of $43.07 last week. BRCM opened this morning at $40.32. So far today the stock has hit a low of $40.30 and a high of $41.52. As of 11:15, BRCM is trading at $41.08, up $0.53 (1.3%). The chart for BRCM looks bullish but deteriorating slightly, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bullish hedged play on this stock, I would consider a January bull-put credit spread below the $32.50 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 11.1% return in just 3 months as long as BRCM is above $32.50 at January expiration. Broadcom would have to fall by more than 20% before we would start to lose money. Learn more about this type of trade here.
BRCM hasn't been below $32.50 since July and has shown support around $36 recently. This trade could be risky if tomorrow evening's earnings disappoint, but even if that happens, this position could be protected by recent support between $33 and $36, plus the stock's 200 day moving average, which is currently at $34 and rising.
Brent Archer is an options analyst and writer at Investors Observer. DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in BRCM, QCOM, or NOK.
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