Semiconductor firm Broadcom Ltd (NASDAQ:AVGO) has been impressive this year. AVGO stock has gained more than 37% since February, with the shares’ latest rally off their July bottom carrying them 23% higher to test resistance near $180.
Barring any major mishaps in the earnings confessional, AVGO stock could be poised to eclipse this technical hurdle, creating an opportunity for Broadcom options traders.
Diving right into expectations, Wall Street expects earnings to rise 23.6% to $2.77 per share, with revenue seen more than doubling to $3.76 billion. That said, some analysts have set their sights higher for Broadcom’s second-quarter performance. Specifically, EarningsWhispers.com reports a whisper number of $2.89 per share, 12 cents better than the consensus.
Given the state of AVGO stock’s ratings backdrop, this elevated whisper number should come as no surprise. According to data from Thomson/First Call, all 30 of the analysts following Broadcom rate the stock a “buy” or better.
Meanwhile, the consensus 12-month price target of $194.85 projects an upside of about 10% for AVGO stock — a figure that could see upward revisions following a solid quarterly report.
Click to Enlarge In contrast with the wealth of bullish sentiment from the brokerage bunch, AVGO stock options traders appear to have taken a decided bearish stance. Specifically, the September put/call open interest ratio comes in at 1.27, while the weekly September 2 series ratio rests at 1.90, with puts nearly doubling calls among options most affected by Broadcom’s quarterly report.
Overall, weekly September 2 series implieds are pricing in a potential post-earnings move of about 5.9% for AVG stock. This places the upper bound near $188, while the lower bound lies near $167.
2 Trades for AVGO Stock
Call Spread: As long as Broadcom doesn’t have any skeletons hidden in the closet, this week’s earnings report should go off without a hitch. AVGO stock is already in a solid uptrend, and there appears to be little in the way of turbulence to slow the shares ascent at this point. Traders looking to bet on a post-earnings rally for AVGO stock might want to consider a Sept $180/$185 bull call spread.
At last check, this spread was offered at $1.84, or $184 per pair of contracts. Breakeven lies at $181.84, while a maximum profit of $3.16, or $316 per pair of contracts, is possible if AVGO stock closes at or above $185 when September options expire.
Put Sell: Traders feeling a bit more cautious when it comes to Broadcom’s quarterly report might want to consider a Sept $150 put sell position. At last check this put was bid at 43 cents, or $43 per contract.
As long as AVGO trades above $150 through September expiration, traders will keep the premium received. If Broadcom shares dip below $150 ahead of expiration, however, traders could be assigned 100 shares of AVGO stock for every put sold at a cost of $150 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
