What are the options strategies before Broadcom's balance sheet?

Broadcom Stock Analysis and Options Strategies

Broadcom (AVGO) is drawing attention as a significant player in the technology sector. The stock price trading around the $400 mark strengthens investors' growth expectations for AI chips. According to the latest earnings report, a yearly increase of 63% in AI revenues further solidifies AVGO's collaboration with Nvidia.

Strategic Partnerships and Market Expectations

According to a report published by The Information on December 6, Microsoft's discussions with Broadcom for the development of specialized chips to meet rising AI demand highlight how crucial the company's strategic position is. Microsoft's shift towards Broadcom, after previously working with Marvell, indicates that the company is seeking a stronger supplier in a period of intensified market competition.

Current Situation in the Options Market

There are intriguing developments in the options market ahead of the earnings report. High open positions in call options with $410 and $420 strike prices expiring on December 19 suggest that large investors expect prices to rise to these levels. However, the open position exceeding 10,000 in the $300 strike put option signals that some investors are hedging against potential disappointments.

Risk Management and Strategies

Currently, the $398–402 range appears to be a reasonable entry point for investors. This range is where both the momentum continues and the earnings risk is not yet priced in. However, a drop below $390 marks a level where the short-term trend would be broken; at this point, developing a stop-loss strategy would be prudent.

To retain upside potential while limiting downside risk: buying a $410 call and holding a $300 put in the same expiration could provide a good balance. Additionally, for investors holding existing AVGO shares, a covered call strategy can provide premium income while minimizing potential risks.

Conclusion

Broadcom's pricing is progressing towards the $410–420 band with the strengthening of the AI cycle. Positive developments following the earnings report could accelerate movement above $420. However, managing the risks associated with high expectations is one of the elements that make investors successful.