Optimize Your Options Trade on Broadcom Ahead of Earnings Announcement
Broadcom (AVGO) is scheduled to release its earnings report on December 11, post-market. The options market indicates a potential stock movement of approximately 10.1%. This article explores how to optimize your options trade on Broadcom ahead of its earnings announcement.
Understanding the Expected Stock Movement
The anticipated price range around Broadcom’s earnings report has been consistent. In the last four earnings announcements, Broadcom stock consistently exceeded the lower boundary of the expected movement. Traders can use this historical trend to structure trades effectively.
Implementing a Bull Put Spread
A bull put spread can be established by selling the 355-strike put option and purchasing the 350-strike put option, both expiring on December 11. Currently, this spread is priced around 85 cents per share.
- Selling the 355-strike put generates an option premium of $85 per 100-share contract.
- The maximum risk involved in this trade is $415.
- Potential returns amount to 20.5% if Broadcom maintains a price above $355 until expiration.
If Broadcom closes below $350, the trader would incur a total loss of $415. The break-even point for this strategy is calculated at 354.15, factoring in the premium received from the spread.
Considerations for Short-Term Trades
Trading options over earnings presents challenges. While a 20% return in two weeks is attractive, there’s a risk of total investment loss. Such trades are suited for those with a high-risk tolerance and a positive outlook on Broadcom’s performance.
Broadcom’s Market Standing
According to Investor’s Business Daily, Broadcom holds a Composite Rating of 99, with an Earnings Per Share Rating of 99 and a Relative Strength Rating of 95. It ranks first in the Electronics-Semiconductor Fabless industry and is positioned 20th out of 197 industry groups.
Broadcom is a vital player in the technology sector, providing diverse semiconductor and infrastructure software solutions. Headquartered in San Jose, California, the company has expanded through innovation and strategic acquisitions, including the notable purchase of VMware.
As with all options trading, investors should be aware of the inherent risks. It’s crucial to remain cautious as potential losses can reach 100% of the investment.
