Broadcom Corp. (NASDAQ: BRCM) stock is falling after fellow chip manufacturer Marvell (NASDAQ: MRVL) indicated an outlook for the first quarter of that year that investors did not like the looks of. whether you think that stock won’t be rising too far in the coming months, next it could be a good instance to look at a bearish hedged play on BRCM.

After hitting a one-year high of $43.07 in October, the stock has hit a new one-year low nowadays. that AM, BRCM opened at $17.75. So far nowadays the stock has hit a low of $17.35 and a high of $18.73. As of 12:30, BRCM is trading at $17.66, down 93 cents (-5.0%). The chart for BRCM looks bearish and regular, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.

For a bearish hedged play on that stock, I would consider a May bear-call credit spread above the $22.50 range. A bear-call credit spread is an options position that combines the purchase and sale of shout options to hedge

risk in case the stock doesn’t do what you think but still leverage nice returns. For that specific trade, we will build an 8.7% return in two and a half months as distant as BRCM is below $22.50 at May expiration. Broadcom would have to rise by more than 27% before we would start to lose money.

BRCM hasn’t been above $22.50 since January and has shown resistance around $20 recently. that trade could be risky whether the profitable situation turns around, but even whether that happens, that position could be protected by resistance BRCM might find at its 50 day moving average, which is currently around $23 and falling.

Brent Archer is an options analyst and writer at Investors Observer.

DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of towering and short stock and option positions that may include holdings in companies he writes about. At publication moment, Brent neither owns nor controls positions in BRCM.

Original post by Brent Archer

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