Broadcom Inc. (AVGO) is trending on social media this morning. Mentions are up 700% in the last 24 hours. It was reported yesterday that OpenAi has partnered with AVGO to help develop a custom AI chip. This news sent the stock up 4.2% yesterday. This morning AVGO is pulling back a bit in pre-open trading.
Investors are focusing on tech earnings this week. That may be affecting the price of AVGO shares and the volatility expectations of the AVGO options. The good news is that AVGO doesn’t announce earnings until December. Short-term implied volatility is high enough to give us an opportunity for a limited-risk, high-probability trade.


This Volatility Term Structure chart for AVGO shows us the implied volatility for the at-the-money options for each expiration. You can see the implied volatility for options expiring this coming Friday is higher than any other term. There are a few potential reasons that short-term volatility expectations are so high. However, as an option trader, we are simply interested in taking advantage of mispriced options. The short-term data suggests AVGO options are mispriced.

This MDM graph compares the modeled expected distribution for future stock prices (the orange line) with the actual distribution of AVGO’s share prices over the past 2 years (the blue histogram). You can see that the actual stock movement shows that AVGO tends to make big moves less frequently than November 1st options prices expect. That tells us the November 1st options are more expensive than they should be if AVGO continues to behave the way it has in the past 2 years. By focusing on these expensive options, we can take advantage of the short-term options mispricing.

AVGO is trending in social media after OpenAI made a deal with AVGO to produce a custom AI chip. Short-term volatility expectations are abnormally high relative to the stock’s historical performance.
This situation gives us another opportunity for a short-term, limited-risk, high-probability trade.
To get the specific details and prices on today’s trade ideas, be sure to read today’s ODDS Online Daily Option Trade Idea.

To access Odds Online Daily and be able to see any stock you are tracking in this software, click here.
Thank you,
Don Fishback
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