Unusual Options Activity as a Leading Indicator for AVGO's Undervaluation

In the intricate dance of financial markets, options activity often serves as a canary in the coal mine for mispriced assets. Nowhere is this more evident than in the case of Broadcom Inc. (AVGO), where unusual options trading patterns in late 2025 have sparked debates about whether the stock is undervalued or merely experiencing a speculative frenzy. To discern the signal from the noise, one must dissect the interplay between institutional confidence, retail-driven momentum, and the mechanics of options markets.

The Gamma Squeeze and Institutional Confidence

The most striking feature of AVGO's recent options activity is the surge in call option buying ahead of the September 12 expiration. Traders flocked to out-of-the-money (OTM) $355 call options, which saw elevated open interest and tight spreads, signaling a high-probability bet on continued momentumAn explosion of speculative call option buying signals the return of retail^[1]. This behavior aligns with the phenomenon of a gamma squeeze, where market makers hedge their short call positions by purchasing the underlying stock as its price rises. The self-reinforcing cycle—driven by delta and gamma dynamics—can amplify price movements, as seen in AVGO's 24% jump from $298.24 to $369.77 between September 2 and September 10Huge, Unusual Options Activity In Broadcom Underlines ...^[2].

Institutional investors have also signaled confidence in AVGO. Knollwood Investment Advisory LLC and PARUS FINANCE UK Ltd increased their holdings by 26.1% and 175.3%, respectively, in Q1 2025, now collectively holding over $22.7 million in sharesKnollwood Investment Advisory LLC Grows Stock Holdings ...^[3]. Such moves suggest a belief in the company's long-term value, particularly given its dominance in AI semiconductors and a $10 billion XPU order from a major client (likely OpenAI). Yet, the question remains: Is the stock's 40% surge in 2025 reflective of its intrinsic value, or is it a case of overvaluation driven by speculative fervor?

Put Options and the Shadow of Pessimism

While call options dominate the narrative, AVGO's put options activity reveals a more nuanced picture. Over 11,700 put options at the $360 strike price were traded, indicating some investors anticipate a pullback below $357.64 by expirationHuge, Unusual Options Activity In Broadcom Underlines ...^[4]. This divergence between bullish and bearish bets underscores the market's uncertainty. However, the recent Q3 earnings report—showing a 63% year-over-year increase in AI semiconductor revenue to $5.2 billion—provides a strong fundamental underpinningBuy the Spike in Broadcom Stock After its Strong Q3 ...^[5]. The company's raised fourth-quarter guidance further reinforces its growth trajectory, suggesting that the puts may be more about hedging than a conviction in a downward trend.

Actionable Strategies for Investors

For investors seeking to capitalize on AVGO's options-driven dynamics, the key lies in synthesizing technical and fundamental signals. Advanced tools like ORATS and Barchart can help identify high-edge trades by analyzing metrics such as implied volatility (IV), delta hedging patterns, and open interestBest Option Scanners of 2025^[6]. For instance, the elevated IV in AVGO's $355 calls (peaking at 45% in early September) suggests overbought conditions, potentially signaling a near-term correction. Conversely, the gamma squeeze dynamics imply that short-term volatility could persist, offering opportunities for those willing to ride the momentum.

Institutional activity also provides actionable insights. The 70% of options volume attributed to institutional tradersInstitutional Trading in Options | How Big Players Impact^[7] means that large-scale buying or selling can significantly impact liquidity and price. Retail investors might monitor gamma-driven movements and adjust their positions accordingly, using stop-loss orders to mitigate risks in a volatile environment.

Conclusion: A Balancing Act

AVGO's recent options activity reflects a tug-of-war between speculative optimism and cautious pessimism. While the gamma squeeze and institutional buying suggest strong near-term momentum, the put options activity and elevated IV hint at potential overvaluation. For investors, the challenge lies in distinguishing between a well-justified rally and a bubble. By combining options analytics with fundamental rigor, it is possible to navigate this complexity and identify actionable opportunities in AVGO's trajectory.