we often don’t understand the magnitude broadcom teeth.
Although significantly smaller than Nvidia, google or appleBroadcom stock is valued at $2 trillion. Five years ago, only two companies held such a distinction. While $2 trillion is not the number it used to be, Broadcom’s $1.75 trillion market cap is still above $2 trillion. tesla, space x, Eli Lilly and JP Morganthe world’s largest bank. Still, the company’s earnings have attracted little attention compared to those names, not to mention Nvidia, which shattered expectations last week.
Still, opportunities abound, and Broadcom (AVGO) is scheduled to report its third-quarter results after the market closes on Wednesday. The stakes are high, especially after the previous results proved disappointing. The stock price fell nearly 13% the next day and as much as 23% the following month. Since then, the semifinals have generally been poor.
For options traders, this setup offers an interesting combination of elevated implied volatility, technical ambiguity, and the lingering shadow of last quarter’s dramatic decline. Market sentiment matters. I’d like to think that the market is holding some grudge against this, but Broadcom’s second-quarter results are still fresh in investors’ minds. Despite the fundamentally strong numbers, the stock fell after Broadcom failed to raise its 2027 AI revenue target.
This situation has injected a healthy dose of fear into current option prices. Broadcom’s implied move is up to 8% by the end of the week. Technically, Broadcom is also bankrupt. It appears to be trending at a level slightly below the level of the 150-day moving average, which fell below on August 19th after the expansion of Marvell and Google’s partnership was announced. However, the Commodity Channel Index (CCI) has turned positive, suggesting that underlying momentum may be quietly building.
A moderately bullish strategy here is to take advantage of rising option premiums by selling out-of-the-money (OTM) cash-covered puts at about 10% below Friday’s closing price, while simultaneously selling upward call spreads. The goal is to collect a total net credit that at least matches or exceeds the width of the call spread so that even an abnormal upward movement does not result in a loss.
In the example below, we recouped almost $7 in less than 4 weeks, or over 1.8% of the current stock price (over 25% annualized). If the stock price stays relatively flat or even rises through an implied upside move, as Nvidia did last week, but then quickly gives back some of that gain, the rapid post-earnings IV boost improves the probability of a profit.
Of course, the downside risk is that if management is disappointed again with its future AI revenue outlook, it could see a repeat of the second quarter decline and be forced to buy the stock at around $328 per share. Time will tell if the 10% discount is a good enough bargain in this case.
Transaction details:
Sell on September 25th $335 Put Sell on September 25th $430 Call Buy on September 25th $435 Call
