To The Moon

$Broadcom(AVGO)$'s stock price rose sharply again on Monday by 5.4%, closing at $1,828.87, setting a new record high.

According to Dow Jones Market Data, Broadcom's market value surpassed $Eli Lilly(LLY)$ for the first time in more than two years, becoming the eighth most valuable company in the United States.

$Broadcom(AVGO)$ reported Q2 results last Wednesday and announced a 10-for-1 stock split that will begin trading on a split-adjusted basis on July 15.

Broadcom Chief Financial Officer Kirsten Spears said in a statement that the split will "make it easier for investors and employees to own Broadcom shares."

Take $NVIDIA Corp(NVDA)$, the leader in artificial intelligence (AI) chips, for example. From the announcement of the stock split to its execution, its stock price rose by 27%. Obviously, investors have similar expectations for Broadcom's future performance.

Although stock price appreciation is one of the reasons for the stock split, Broadcom's huge potential in the era of AI explosion is another necessary reason for its split. Broadcom's main products include Ethernet switching chips, packet processors, ASCI, etc. Its chips are used to power the underlying software in the industry.

Investors who are optimistic about $Broadcom(AVGO)$ can use diagonal spread strategies to trade stocks and reduce the risks they take if they are worried about risks.

What is a diagonal spread?

A diagonal spread is a spread established using options with different strike prices and different expiration dates. In general, the long leg of a spread has a longer duration than the short leg. Diagonal spreads include diagonal bull spreads and diagonal bear spreads.

The diagonal bull spread is basically similar to the bull call spread strategy, but it has been upgraded and improved again. The difference is that the two options of the diagonal spread have different expiration dates. The trader buys 1 longer-term call option with a lower strike price and sells 1 shorter-term call option with a higher strike price. The number of call options bought and sold is still the same.

$Broadcom(AVGO)$ Diagonal Spread Option Simulation Strategy

Assuming that investors are optimistic about Broadcom in the next month, they can directly buy a call option with an exercise price of $1830 and an expiration date of July 19, 2024. This option becomes our long leg, which costs $10,520 based on the latest transaction price.

After the long leg is established, we can establish the short leg in a shorter cycle than the long leg. Here we can choose to establish it in weekly units. Choose to sell a call option with an exercise price of $1,920 and an expiration date of June 21, and obtain a premium of $1,438.

If the sold call options are not exercised, a profit of $1,438 will be generated, which is about 13.7% of the cost of $10,520 on the long side.

However, the short leg can be executed once a week. When the remaining date of the long leg is up to 32 days, investors can sell 5 call options. If the premiums of these five sold call options can be successfully obtained, the cost of buying the call options themselves will be greatly reduced.

Compared with buying a call option alone, the diagonal spread obtains an additional premium income, which reduces the overall net premium expenditure of the strategy, shifts the break-even point of the strategy to the left, and increases the winning rate accordingly.

In addition, the selling point of the diagonal spread can be controlled by the investor himself, so different shorting strengths can be selected in different cycles, which is convenient for investors to control risks.

The diagonal spread is essentially a low-cost buying call option strategy, which is worth studying by investors.