Yahoo Finance Broadcom call buying surges on report of deal with Avago
By Saqib Iqbal Ahmed
NEW YORK (Reuters) - News that chipmaker Broadcom Corp is in talks to be bought by Avago Technologies Ltd spurred a flurry of trades in Broadcom's short-term calls, and timely buyers of the options could reap huge gains.
Broadcom shares rallied 18 percent to $55.35 and Avago rose more than 8 percent to $141.40 on Wednesday, after the Wall Street Journal reported that the two companies are in talks for a potential deal. A deal could come as early as this week, two people familiar with the talks told Reuters.
Activity in both chipmakers' options jumped to several times the normal level, with calls betting that the stocks would rise accounting for the bulk of the trades.
"Afternoon trades on Broadcom included some well-timed trades in weekly calls that expire later this week," said Fred Ruffy, options strategist at WhatsTrading.com.
"Specifically, the $48 and $49 strike calls were swept across multiple exchanges just as the story was developing," he said.
One or more traders snapped up Broadcom weekly calls immediately after the first headlines on the possible deal appeared on Dow Jones Newswires.
About 1,380 Broadcom calls at the $48 strike price and set to expire on Friday, traded between 50 and 74 cents, for a total price of about $70,000. These traded at 1:58:33 p.m. ET (1758 GMT), just a second after the news broke, and even before Broadcom's shares began spiking in reaction to the news.
These options last traded at $9.14, making the calls worth $1.26 million, according to Thomson Reuters data. On paper, the trades stand to make a profit of about $1.2 million.
Activity in weekly calls at the $49 and $48.50 also spiked at the same time.
Similarly speedy call buying was also seen in Altera Corp's options in March, when reports first emerged that Intel Corp was in talks to buy Altera.
On Wednesday, 154,000 Broadcom options, or 10 times the normal volume, changed hands, while 35,000 Avago contracts, or 8 times normal, traded, according to Trade Alert data.
(Reporting by Saqib Iqbal Ahmed; Editing by Richard Chang)
