Market Insights

Will Broadcom be the next company to achieve a $1 trillion valuation? One big options trader may think so.

Check out this unusual activity yesterday in AVGO, which is up more than 50 percent so far this year:

• 7,000 December 200 calls were purchased for $5.40.
• 7,000 March 225 calls were sold for $5.20.

Volume was below open interest in the December 200 calls but not the March 225s. That may suggest an existing short position was closed in the nearer-dated contracts and rolled to the higher strike. What does it mean?

Calls fix the price where investors can buy a security. They can appreciate when shares rise and lose value to the downside. Traders can also sell calls against existing shares. That strategy, known as a covered call, lets them generate credit from the passage of time.

In the case of Tuesday’s activity, the investor probably owns at least 700,000 AVGO shares and sold the December 200 calls at an earlier date. He or she may think the stock is ready for a near-term advance, so they bought back the December calls to avoid being forced to sell the underlying.

Rolling up to the March 225s gave them an additional three months and raised their potential exit price by $25. Making the adjustment cost a net $0.20.

The Next Megacap?

AVGO entered Tuesday’s session with a market capitalization of about $808 billion. A move to $225 would push its valuation slightly above $1 trillion. The chipmaker is currently the ninth most-valuable member of the S&P 500, according to TradeStation data.

Its last earnings report on September 5 encountered a mixed reaction. The shares initially fell on tepid guidance, but rebounded along with the broader technology sector. It’s enjoyed strong data-center demand and could potentially benefit from Apple’s (AAPL) iPhone 16.

The stock broke a falling trendline last week and now challenging peaks from the first half of July. Its 50-day moving average is above the 100-day moving average and both are above the slower 200-day moving average. Those patterns could make some chart watchers think its longer-term uptrend remains in effect.

AVGO ended the Tuesday’s session up 1.1 percent at $174.84.

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