Broadcom Options Earnings Strategy Review

1. Single Earnings Performance Analysis

1. Bullish Strategy: Long Call

Performance in this Earnings Report:
If you bought a Call Option with a strike price of 195 and a Delta of 0.25 the day before the earnings release, the contract surged 1260.3% after the report, marking the highest single return in history.
Review of the Past 12 Earnings Reports:
- Success Rate: 3 out of 12 successes, 9 failures.
- Returns from the three successful instances: 293.2%, 450.3%, 1260.3%.

2. Optimized Strategy: Call Spread or Put Spread

Using a Call Spread for bullish trades significantly improves the win rate, with most returns exceeding 100%.
Put Spread strategies also demonstrated superior stability in returns, making it a solid choice for conservative investors.

3. Long Volatility Strategy: Long Strangle

Performance in this Earnings Report:
Buying a Put with a strike price of 172.5 and a Call with a strike price of 195 before the earnings report yielded a total return of 490.8%.
Review of the Past 12 Earnings Reports:
- Success Rate: 50% (6 out of 12 instances succeeded).
- Returns from successful trades: 490.8%, 129.4%, 173.8%.
Strategy Analysis:
- Compared to Long Call, Long Strangle provides a higher win rate and more consistent returns.
- Long Straddle, while slightly less profitable, remains a viable strategy.

2. AVGO Earnings Volatility History and Strategy Selection

1. Earnings Volatility Characteristics

Single-day price movements from the past 12 earnings reports (March 2022–December 2024):
+24.4%, -10.4%, +12.3%, -7.0%, +2.04%, -5.5%, +2.8%, +5.7%, +2.6%, +1.7%, -2.3%, +3.0%.
- Average Movement: +2.5%
- Absolute Average Movement: 6.7%

2. Characteristics of Low-Volatility Stocks

Broadcom has historically been a low-volatility stock, making short volatility strategies highly effective during earnings.

Exception in This Report:
The rare extreme movement (+24.4%) led to an extraordinary return for long volatility strategies.
Long-Term Performance:
Sticking to long volatility strategies over time would not yield ideal cumulative returns.

3. Short Volatility Strategy: Short Call

Under a 14% implied volatility assumption, the Short Call strategy previously maintained a 100% win rate.
This Time’s Failure:
The extreme volatility caused the strategy to fail for the first time, hurting cumulative returns.

3. Conclusion

1. Strategy Review

Broadcom’s shift to a high-volatility stock in this instance is an outlier. Relying solely on this earnings report’s success may not yield long-term benefits.
For investors without precise predictive abilities, it is advisable to prioritize short volatility strategies to achieve consistent returns.

2. Long-Term Recommendations

From a statistical perspective, short volatility strategies remain the best choice given Broadcom’s low-volatility nature.
For those with the ability to accurately predict earnings direction and magnitude, adjusting strategies flexibly can achieve higher returns.

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