BY MARK SEBASTIAN
June 27, 2024
REPLAY
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TRADE IDEA
Coming Monday
Broadcom (TIcker: AVGO)
After months of consolidation, Broadcom (TIcker: AVGO) has broken out to the upside after its earnings report on June 13th:
Once it reached the resistance of the top of the pitchfork, it sold off 15%.
It is now trading below the red median line and sitting on support.
The stock does look to be bear flagging before taking its next leg lower which will close that earnings gap, taking it to $1505.80.
The 21 day moving average is also sitting at that level providing further support.
Below there the bottom of the pitchfork support is at $1477.
If the support here at $1570 holds, resistance is up at $1680.
I would say AVGO is going lower from here to at least close the gap.
Licia
Broadcom is not a particularly new company. It was a high flyer back when its stock symbol was BRCM (yes this is not its original stock symbol).
But Broadcom has moved into a different universe. 1 year ago the stock was 825 dollars..it topped out at almost 1900 dollars just a few days ago. As it stands the stock is up almost 100% year over year.
AVGO is currently worth more than TSLA…showing the growth that people see in the stock.
Looking at the numbers the thing that stands out is the PE. The price earnings ratio is actually LOWER than NVDA.
If it hits an all time high then it would be about the same as NVDA.
The stock makes ALOT of money raking in 23 dollars a share…a net income of over 10 billion dollars.
This is a high flying stock…similar to NVDA that makes real money.
The stock is going to split on July 11th and has pulled back over the last few days.
Ill let licia look at the chart…but we know that stocks tend to rally hard into earnings.
Long term…not so sure on buying here there are some trends I dont like…notably the pop in long term debt:
I mean just WOW…what a huge increase in borrow by AVGO…but…
…near term…I’m a buyer.
Don’t forget how big this stock is
AVGO is now one of the top 5 market cap stocks in the world. It has run up 100% over the last year. These are both big numbers that can affect volatility. Think of it like a freight train in a direction, once it gets moving it is hard to stop.
AVGO is on a $500 round trip from $1300 as Licia points out. If that trend continues, AVGO implied volatility is low. The story around Big Cap tech is still evolving with AI. That story is not going away so the ranges for AVGO will be with us for a while.
1 year chart of AVGO with 30 day implied vol and 10, 20 and 30 day realized vol
AVGO options are reasonably priced given how big the moves are. Remember AVGO is moving $600 in a couple of weeks. If the earnings gap is filled, options are fair to underpriced. We should see some continued big moves after the debates in the next quarter.
Out on Assignment
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Mark Sebastian
Founder & CEO, Option Pit
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