Dykstra: Broadcom Options May Pay Off

The May options on this tech name look right. Plus the Stat Book.
Author:
Publish date:

What a difference a day makes.

Tuesday the bulls were in complete charge again, pushing the market higher, and tech stocks, led by

Apple

(AAPL) - Get Report

, continue to climb higher. Meanwhile, oil continues its march toward $100. Complicating matters, it's difficult to discern which way stocks will move in light of the weakness in the financial sector.

If Tuesdaywas any indication, there will be some opportunities to make money off of deep-in-the-money calls. We need to capture just one small move up to lock in a $1,000 win. Investors need to find solid, value companies and allow ample time for deep-in-the-money calls to capture a gain.

Often times the best picks are the ones that have been overly beaten down. Once these stocks find their support, they tend to benefit from a quick jump.

Today I want to focus on

Broadcom

(BRCM)

. With earnings behind it, we are in for no more surprises with this stock. The company reported disappointing earnings in late October, held down by one-time items and higher expenses. Although this certainly is a short-term setback for the stock, this company is in great position to benefit from the recent resurgence in technology.

I wrote about Broadcom last May and scored a fairly quick deep-in-the-money win. Broadcom produces chips for set-top boxes, office networks, home networking supplies, and recently it has been moving nicely into the wireless-based chip industry, with cell phone and Bluetooth device chips. While profits shrunk in its most recent quarter, revenue growth was strong.

Broadcom invests heavily into research and development. I have emphasized the value of R&D in the pharmaceutical industry at length, and technology is no different. Broadcom's customers could be mistaken for the "who's who" of the tech world, and they include Apple,

Cisco

,

Dell

,

EchoStar

,

Hewlett-Packard

,

IBM

,

Motorola

,

Nortel

and

3Com

. It's fair to say that Broadcom is playing in the Major Leagues.

The company has significant market share in markets for cable modems, digital set-top boxes, residential broadband and servers. It also provides products in emerging-technology markets, including Bluetooth, Digital TV, VoIP, DSL and broadband processors.

These expenditures provide the innovative technologies that pave the way for future wealth. They will ultimately help solidify Broadcom's strong position in the semiconductor industry. I will place a limit order to buy 10 May 27.50 deep-in-the-money calls (RCQEY) for $7.40 or better.

The Stat Book

After the end of this week and nine months of deep-in-the-money calls recommendations, the time has come for me to take a brief hiatus. As always, today is the scheduled posting of my weekly Stat Book, which is below. I plan on continuing this weekly feature -- even while I am gone.

Yesterday I mentioned my appreciation for the support of my loyal readers. Today, after reviewing reader email, I have to reiterate my gratitude. Email response to my announcement was overwhelming, thoughtful and very kind.

My sincere thanks to all the readers who took the time to wish me well. I truly appreciate each of you who follow my column and appreciate the effort I put into my deep-in-the-money call recommendations.

It is because of reader loyalty that I find sharing my deep-in-the-money calls strategy to be a rich and rewarding endeavor.

Additionally, there were several readers who requested an update on my

Hershey

(HSY) - Get Report

position. The market has not been kind to Hershey this year and with this position due to expire next week, my plan is to take advantage of the low cost of the deep-in-the-money calls, which closed at $0.30 cents.

This presents a risk-to-reward ratio that is just too good to pass up. By adding another 100 contracts, I will lower my average to $1.43 from $1.99, putting me in striking distance of a win in the bottom of the ninth. Hershey was in the process of a rally when the market was hammered last week.

I am going to keep a cool head and put my investment in the best place possible for a win: I will place an order for 100 contracts of the Hershey (HSY) November 45 calls (HSYKI) at 30 cents.

And last up, readers have also expressed concern for

Precision Drilling Trust

,

Maxim Integrated Products

and

Citigroup

. While on hiatus, I will be keeping tabs on all open positions, sending a weekly update to the Stat Book and alerting readers to any information that will help everyone remain successful in my deep-in-the-money calls strategy, which will include how to take these and all my open positions to the win column.

Always remember: Life is a journey, enjoy the ride!

Image placeholder title

At the time of publication, Dykstra had no positions in stocks mentioned.

Nicknamed 'Nails' for his tough style of play, Lenny is a former Major League Baseball player for the 1986 World Champions, New York Mets and the 1993 National League Champions, Philadelphia Phillies. A three time All-Star as a ballplayer, Lenny now serves as president for several privately held businesses in Southern California. He is the founder of The Players Club; it has been his desire to give back to the sport that gave him early successes in life by teaching athletes how to invest and protect their incomes. He currently manages his own portfolio and writes an investment strategy column for TheStreet.com, and is featured regularly on CNBC and other cable news shows. Lenny was selected as OverTime Magazine's 2006-2007 "Entrepreneur of the Year."