Broadcom Shares Jump 6% as Smart Money Piles Onto to Bullish Options: Options Chatter

$Broadcom (AVGO.US)$'s options market is signaling optimism that the stock could sustain Tuesday's 6.2% gains over the next few months after the AI chip giant announced an expanded collaboration with $Alphabet-A (GOOGL.US)$'s Google and Anthropic.

Shares of the AI chip giant stayed in the green throughout the trading day, closing at $333.94 Tuesday, and defying the downward pressure seen across the stock market that crimped the tech-heavy $Nasdaq Composite Index (.IXIC.US)$'s advance to 0.1%, while the benchmark $S&P 500 Index (.SPX.US)$ was up less than 0.1%

(To see Broadcom's options chain, click here. For the options market page, click here.)

With less than half hour before the trading ended, a pair of bullish block trades was posted, with an active buyer paying a combined $134.6 million in premiums for call options that give their holder the right to buy a total of 2.5 million Broadcom shares at $300 each by July 17.

While that strike price is more than $33 below the current stock price, Broadcom shares will need to climb above the breakeven level of $353.83 before the call options expire on July 17 for that buyer to make money from a similar trade.

"We are significantly more confident of Broadcom achieving much greater than $120B+ of AI revenues" in fiscal year 2027, given the long term agreement and revenue commitment under the expanded collaboration with Google and Anthropic, JPMorgan analysts including Harlan Sur said. They estimate about $80 billion to $90 billion in networking revenue excluding the sales to $Meta Platforms (META.US)$, OpenAI, Softbank/ARM, Bytedance ASIC programs and associated AI networking revenues.

Under the long-term agreement, Broadcom will develop and supply custom Tensor Processing Units (“TPUs”) for Google’s future generations of TPUs and supply networking and other components for its next-generation AI racks up to 2031, according to a disclosure with the Securities and Exchange Commission published after the market closed Monday.

The AI chip giant also said Anthropic will access about 3.5 gigawatts as part of the multiple gigawatts of next generation TPU-based AI compute capacity through Broadcom.

At current prices and volatility, a similar transaction as the $134.6 million block trade mentioned above has a profit probability of 37.3% for the buyer. If Broadcom shares climb above the current breakeven level of $354.95, the maximum profit potential could be unlimited. But if it doesn't, and the call options expire worthless, the maximum loss potential for the buyer could reach $5,495 per contract.

When you look at the $471 average price target of analysts who cover the stock, it's clear that the financial professionals who track Broadcom are also confident of the company's outlook. JPMorgan analysts are even more optimistic, with their price target of $500 for Broadcom, which means they expect the stock to surpass its all-time high of $414.61 reached in early December.

The buyer of those call options and the analysts weren't the only ones optimistic about the share price rally.

Broadcom's options market is pricing in a 32% probability that the stock could climb above $367.37 by July 17, according to exchange data tracked by moomoo. While that may seem small, those odds are sloping higher from a 6.2% probability seen in options expiring in six days.

"We view this as a major proof point for the durability and expanding" total addressable market of Bradcom's XPU application-specific integrated circuit (ASIC) franchise and limited threat of customer-owned tooling or in-house program, the JPMorgan analysts wrote in a note to clients late yesterday, reiterating their overweight rating on the stock that they said "remains our top pick in semis."

The JPMorgan analysts also noted that the partnership with Google is "already exhibiting the same long-term commitment/upsizing pattern" similar to what they've seen in the chip giant's supply agreement with $Apple (AAPL.US)$.

Share your thoughts on Broadcom in the comments section. Do you see the stock climb back above its all-time high later this year? Let your voice below by voting below. And if you want to read more options columns like this one on QQQ ETF, or this one on Apple, follow me here, where you can also find my column that tracks short sellers' trading volume and other interesting stories on some of the biggest stocks.

Disclaimer: Options trading entails significant risk and is not appropriate for all customers. It is important that investors read the Characteristics and Risks of Standardized Options before engaging in any options trading strategies. Opening new options positions close to or on their expiration date comes with substantial risk of losses for reasons that include potential volatility of the underlying security and limited time to expiration. Options transactions are often complex and may involve the potential of losing the entire investment in a relatively short period. Certain complex option strategies carry additional risk, including potential losses that may exceed the original investment amount. If applicable, supporting documentation for any claims will be furnished upon request.

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