It is a beautiful Monday morning and it marks the start of another great month for trading stock options. August was an exciting rollercoaster ride as stocks in the S&P 500 fell to long-time lows before making new record highs. I think it expedient that we check the performance of one of the unique stocks in the S&P 500 as we enjoy the long weekend in preparation to trade stock options with renewed vigor in the new month.
I initiated coverage on trading options of Avago Technologies (NASDAQ:AVGO) on May 6 in a post examining possibilities inherent in AVGO calls after the company was added to the S&P 500.Avago Technologies Limited is a designer, developer and global supplier of a range of analog semiconductor devices with a focus on III-V based products. Its product portfolio ranges from discrete devices to complex sub-systems that include multiple device types and incorporate firmware for interfacing between digital systems.
Performance So Far
As at May 6 when I initiated coverage on trading AVGO calls the company opened at a trading price of $67.93. As at market close on August 29, the stock closed at $82.09 after making a new 52-week high of $84.80. In essence, the stock has gained 24.83% within that period as shown in the chart below.
More interesting is the fact that the stock has outperformed my $75 dollar price target and the AVGO Oct 2014 70.000 call (AVGO141018C00070000) that I recommended at $5 per contract is already up an impressive 149.8%.
Outstanding Third Quarter Results
Avago Technologies released its third quarter (Q3 2014) results on August 28 to show excellent gains in it top and bottom lines. Highlights of third quarter results are presented below:
- The company reported Net Revenue of $1.28B to mark an 84% sequential growth over the revenue of $701M that was reported in the second quarter and to mark a 100% year-over-year growth
- Gross margin was 57% to mark a 3ppt gain over gross margin of 54% from Q2 and a 6ppt over gross margin of 51% from the same period last year
- Net income was reported at $347M to mark a 55% sequential growth over net income of $223M that was reported in the second quarter. The reported net income also marks a 84% annual increase from the same quarter last year
- Avago reported earnings per share of $1.26 to mark a 48.23% sequential increase over earnings of $0.85 per share in the second quarter and to mark a 70.27% annual increase.
- The company expects revenue to be up in the range of 18% to 22% in the current quarter
More Upside Potential Ahead
One of the potential catalysts for growth going forward for Avago Technologies is the synergy that could be gained by the acquisition of LSI. For one, the company is working towards saving $200M in SG&A expenses by trimming down the workforce in order to avoid redundancy.
How to Trade AVGO Calls
Without much ado, I will be scaling out of my AVGO Oct 2014 70.000 call options as soon as the market opens tomorrow. I intend to sell 80% of my position and hold the remaining 20% until the second week of September to take advantage of future upside on the stock. If you are new to the AVGO party, you should consider buying the AVGO Jan 2015 85.000 call (AVGO150117C00085000) as we have a new $90 price target on the stock.
— Daily Option Alerts