Broadcom Stock: Strategic Options Positioning for Post-Earnings Volatility

Broadcom (AVGO) has emerged as a defining story in the semiconductor and enterprise software markets, driven by its AI-driven revenue surge and strategic VMware integration. With the company’s Q3 2025 earnings report approaching, investors face a unique opportunity to capitalize on the elevated implied volatility (IV) of 94%—a stark contrast to its historical volatility of 45% [1]. This volatility, coupled with divergent analyst price targets and robust financial performance, creates a fertile ground for strategic options positioning.

Financial Performance and Market Expectations

Broadcom’s recent results underscore its dominance in the AI and enterprise software sectors. For Q2 2025, the company reported record revenue of $15 billion, a 20% year-over-year increase, with AI-related revenue surging 46% to $4.4 billion [4]. This momentum is expected to continue into Q3, with management projecting $15.8 billion in revenue and $1.66 in adjusted EPS, driven by AI networking and XPUs growth [5]. Analysts have set a wide range of 12-month price targets, averaging $280.36, with high and low estimates at $340.00 and $210.00, respectively [2]. These figures suggest a market split between cautious optimism and aggressive bullishness, reflecting both the company’s growth potential and valuation concerns.

The stock’s forward P/E of 35.9x is supported by expectations for 36.9% EPS growth in FY25 and 24.4% in FY26 [3]. However, this premium valuation also introduces risks, particularly if earnings fall short of expectations or if margin pressures emerge from AI-related investments.

Strategic Options Positioning

Given the high IV and expected 6.5% price swing post-earnings [1], options strategies that balance risk and reward are essential. Three approaches stand out:

1. Cash-Secured Puts
   Selling out-of-the-money puts (e.g., the Sept. 5 $285 strike) allows investors to collect premiums while capping downside risk. With a 79% probability of expiring worthless, this strategy offers a defined risk profile and aligns with the stock’s current price of $297.39 [1]. The break-even point of $281.70 provides a buffer against moderate declines, making it ideal for investors willing to acquire AVGO at a discount or secure income.

2. Bull Put Spreads
   For those with a more bullish outlook, a bull put spread with October 3, 2025 expiration and a $270 strike cap limits losses to $8.87 per spread while benefiting from elevated IV [3]. This strategy is particularly effective if AVGO remains above $270, as implied volatility is expected to contract post-earnings—a phenomenon known as “IV crush” [2].

3. Short Straddles with Caution
   Selling at-the-money straddles (e.g., $295 strike) capitalizes on the expectation of minimal price movement post-earnings. However, this approach carries significant risk if the stock gaps up or down, as breakeven points could be breached. Given AVGO’s history of earnings beats (3.65% average over the last two quarters) [3], a short straddle may be viable but requires strict stop-loss discipline.

Risk Considerations and Valuation Realities

While the options market anticipates a 6.5% move, historical data shows AVGO typically experiences a 19% IV contraction after earnings [2]. This “IV crush” could erode gains for strategies reliant on volatility retention. Additionally, the stock’s high valuation—trading at a 94.6% year-over-year gain [3]—introduces downside risks if AI growth slows or VMware integration faces challenges.

Conclusion

Broadcom’s earnings report presents a pivotal moment for investors. The combination of high IV, strong fundamentals, and divergent analyst targets creates a landscape where strategic options positioning can yield asymmetric returns. Cash-secured puts and bull put spreads offer structured ways to participate in the stock’s potential while managing risk, whereas short straddles require careful execution. As always, investors should align their strategies with their risk tolerance and consult financial advisors to navigate the complexities of volatility trading.

Source:
[1] Broadcom Stock: Here's One Options Move With Earnings [https://www.investors.com/research/options/broadcom-avgo-stock-cash-secured-put-options-volatility/]
[2] Assessing Broadcom: Insights From 25 Financial Analysts [https://www.nasdaq.com/articles/assessing-broadcom-insights-25-financial-analysts]
[3] Buy, Sell or Hold AVGO Stock: Key Tips Ahead of Q3 Earnings? [https://finance.yahoo.com/news/buy-sell-hold-avgo-stock-173800661.html]
[4] Broadcom Inc. Announces Second Quarter Fiscal Year 2025 Financial Results [https://investors.broadcom.com/news-releases/news-release-details/broadcom-inc-announces-second-quarter-fiscal-year-2025-financial]
[5] AVGO Earnings: Implied Moves and IV Crush Broadcom [https://marketchameleon.com/Overview/AVGO/Earnings/Earnings-Charts/]