Broadcom (AVGO) will report their fiscal Q3 results tonight after the close. The options market is implying about an 6% one day move tomorrow which is rich to its 4.25% average following the last four quarterly reports, and above its 5.4% ten-year average move. With the stock at $255 the Aug 25th 255 straddle (call premium + the put premium) is offered at about $15, if you bought that and thus the implied move you would need a rally above $270 or a decline below $240 to make money by tomorrow’s close. This move seems a tad rich for a stock with a $100 billion market cap.
Shares of AVGO are up a whopping 43% year to date, just this morning ticking at a new all time high. Taking a quick look at the chart, there is obviously overhead technical resistance near this morning’s high, which was a matched high from late July and early June. The uptrend from the December low should serve as mild near term support, while the May breakout level to new all time highs and the early July low near $230 should serve as healthy near term support:
AVGO is a cheap stock trading only 15x next year’s expected eps growth of 8% on 7% expected sales growth. But the stock’s year to date gains likely incorporate an expected beat and raise quarter. Wall Street analysts are wildly bullish on the stock, with 32 Buy ratings, only 2 hold ratings and NO Sells with an average 12-month price target of $280.
I don’t have a strong view on the stock one way or the other, but If I were long I might consider selling weekly upside calls at the implied move to take in some premium. For instance, if I were long 100 shares of the stock now trading 255 I might sell 1 of the Aug 25th weekly (tomo) 270 calls at $2 if the stock is below 270 on tomorrow’s close I would receive the 2. If the stock goes down then have small $2 buffer, if it goes through 270 then it would be like selling the stock at 272 as gains would be capped. you could always buy back the short call to keep the long stock position intact.