To The Moon

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.