Broadcom's (AVGO) Surprising Outperformance and Strategic Options Play to Boost Yields

In a market starved for growth, Broadcom (AVGO) has emerged as a rare beacon of momentum. The stock has surged 25.84% year-to-date in 2025, building on a 110% rally in 2024. This isn't just a one-trick pony—Broadcom's AI semiconductor division alone generated $4.4 billion in Q2, a 46% year-over-year jump. With hyperscalers like Amazon and Google doubling down on AI infrastructure, the company is positioned to dominate the $120 billion AI chip market by 2025. But what's truly fascinating isn't just the stock's performance—it's how investors can leverage its volatility and momentum to engineer high-yield strategies in a low-growth environment.

The Engine Behind the Outperformance

Broadcom's Q2 results were a masterclass in execution. Revenue hit $15.004 billion, a 20% year-over-year increase, with AI-related revenue surging to $4.4 billion. The Infrastructure Software segment, bolstered by VMware's integration, added another $6.596 billion. Free cash flow of $6.411 billion (43% of revenue) has fueled a $7 billion shareholder return program, including a $0.59 dividend per share. Yet, the stock's 108.68 P/E ratio and recent insider selling have raised eyebrows. But here's the twist: Broadcom's dominance in custom AI ASICs—70% of the market—and its 67% EBITDA margin make these risks manageable.

Strategic Options Plays: Covered Calls and Cash-Secured Puts

With AVGO trading near its 52-week high of $292.59 and implied volatility at 35.70 (a 3.17% percentile), the options market is undervaluing its potential. For income-focused investors, the August 1, 2025, expiration offers compelling opportunities:

1. Covered Calls on $295 Strikes:
2. Moneyness: 0.24% in-the-money
3. Bid-Ask Spread: $0.15
4. Annualized Return: 155.16%

5. Open Interest: 3,520 contracts
   This strike offers a breakeven point of -1.46%, meaning even a slight pullback won't erase gains. With a delta of 48.83%, there's a 49% chance the stock stays above $295 by expiration.

6. Cash-Secured Puts on $280 Strikes:

7. Implied Volatility: 35.70 (low, but rising)
8. Premium Income: $1.05 per contract
9. Breakeven: $278.95
   This strategy allows investors to collect premium while effectively buying AVGO at a 4.5% discount to the current price. Given the stock's 43% free cash flow margin, a dip to $279 would still leave it in high-growth territory.

Balancing Risk and Reward

Critics will point to the stock's 105.6x P/E and insider selling, but these are overblown in the context of AI's secular tailwinds. Broadcom's Tomahawk 6 switch and 3.5D XDSiP technology are critical for AI clusters, and its 43% free cash flow margin dwarfs peers like NVIDIA (NVDA) and AMD (AMD). For those wary of valuation, a collar strategy—buying a put at $275 and selling a call at $305—could lock in a 7.5% yield while capping downside risk.

The Verdict

Broadcom isn't just a growth stock—it's a cash-flow machine with a stranglehold on the AI revolution. For investors seeking income in a low-yield world, its options chain offers a rare combination of liquidity, volatility, and strategic flexibility. The key is to exploit the current low implied volatility environment before earnings on September 4 and the next AI hype cycle drive premiums higher.

In conclusion, Broadcom's outperformance is no accident—it's a calculated play on AI's explosive demand. By pairing its momentum with tactical options strategies, investors can turn a high-flying stock into a high-yield generator. Just don't let fear of a high P/E blind you to the company's ability to convert AI demand into cash flow. The future is here, and it's written in silicon.