Here's a win-win way to trade Broadcom's earnings report

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Here's what options traders see for Broadcom ahead of tomorrow's earnings

Broadcom could be setting up for a winning trade.

The semiconductor giant reports earnings Thursday after the closing bell, and the options market is implying a 5% move in either director for its stock, which has climbed about 18% since the beginning of this year.

That's roughly in line with Broadcom's post-earnings move over the last four quarters, which has created a window of opportunity for traders looking to bet on a big swing, said Dan Nathan, co-founder and editor of RiskReversal.com.

"We talk all about implied movement, and I think here's a good example of just how we figure that out," he said Wednesday on CNBC's "Options Action," adding that Broadcom options saw two times their average daily trading volume in the day's session.

In Broadcom shares on Wednesday, that straddle was made up of the weekly, at-the-money $297.50 call options and the $297.50 put options, purchased at around $7 each for a total cost of roughly $14, Nathan said. Broadcom was trading around $300 early Thursday.

"That's the straddle. If you bought the implied movement between now and Friday's close, you would either need a $14 rally to the upside or a $14 decline to the downside," he said. "That's a pretty wide range if you think about it, but in line with how this stock has moved over the last four quarters."

VIDEO1:1201:12
Broadcom reports EPS beat, revenue miss, down in after-hours trade

And, with Broadcom's stock up for the year but still underperforming the VanEck Vectors Semiconductor ETF, which tracks the chipmakers and is up almost 40% for 2019, this kind of trade can seize on the uncertainty around where Broadcom will go next.

"Broadcom has a way to go here," Nathan said. "One of the reasons for this underpeformance? We know that they just bought Symantec's enterprise business here. They've been really acquisitive over the last few years, so that might be keeping some wraps on the multiple for now."

Guy Adami, director of advisor advocacy at Private Advisor Group, had his eye on one key level in Broadcom: "the previous all-time high" at around $323 that the stock reached in May.

"Given the parameters [Nathan]'s talking about, maybe it takes a run at those levels and maybe it tops out there," he said in the same "Options Action" segment. "So, I think there's a good chance we make a run given the environment we're seeing, but I think you pull the rip cord if it gets [there]."

Broadcom shares were up by less than 1% in early Thursday trading.

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