Broadcom and LuLu on Tap Today

Option Straddle review, MEGA9s and All Subscriber Trackers

Ok let’s go right into the Broadcom and LuLulemon options straddles and see what we find there. Broadcom (AVGO) this Friday’s $260 strike is priced around $18 and indicates a 6.9% move. The options skew likely favors calls, with higher implied volatility for OTM calls compared to puts, reflecting market expectations of a potential upside move driven by AI growth and a strong earnings beat. However, the skew isn’t extreme, as downside risks from a high valuation and broader market uncertainties (e.g., tariff pressures, tech sector rotation) keep some demand for puts alive.

Considering the chart structure and recent moves, perhaps a put spread may be of note. The $247.50/$237.50 put spread is trading $1.90 for a 4.26 full payoff risk reward. Here is the breakdown of how this type of trade functions:

Key Assumptions

• The spread is for this Friday.

• The current stock price is approximately $261.

• The net debit (cost of the spread) is $1.90 per share, or $190 per contract (since 1 contract = 100 shares).

Calculations

1. Maximum Profit:

   • The maximum profit occurs if AVGO closes at or below $237.50 at expiration.

   • The width of the spread is the difference between the strike prices: $247.50 - $237.50 = $10.00.

   • Subtract the net debit paid: $10.00 - $1.90 = $8.10 per share.

   • Maximum profit per contract = $8.10 × 100 = $810.

2. Maximum Loss:

   • The maximum loss is the net debit paid, which is $1.90 per share, or $190 per contract.

   • This occurs if AVGO closes at or above $247.50 at expiration, rendering both puts out of the money.

3. Breakeven Price:

   • Breakeven = Higher strike - Net debit = $247.50 - $1.90 = $245.60.

   • The trade is profitable if AVGO closes below $245.60 at expiration.

4. Risk-Reward Ratio:

   • Risk = Maximum loss = $190.

   • Reward = Maximum profit = $810.

   • Risk-reward ratio = Risk / Reward = $190 / $810 ≈ 1:4.26.

   • This means for every $1 risked, the potential reward is approximately $4.26.

Payoff Scenario

• If AVGO closes at $237.50 or lower: You realize the maximum profit of $810.

• If AVGO closes between $245.60 and $247.50: You realize a partial profit, calculated as $247.50 - Stock Price - $1.90.

• If AVGO closes at $247.50 or higher: You lose the maximum of $190.

• Given the current price of $261, the stock would need to drop significantly (about 6-8% based on the expected move) for the spread to be in the money, which aligns with the earnings volatility but leans against the current bullish sentiment.

Here is the chart as you can see, just a massive run off the recent $140 lows, now hitting above $260 a move higher of 86%:

Ok as far as Lululemon the $337.50 straddle is pricing at $31.20 is a 9.5% move. Directionally the recent move off the lows is formidable and not so sure we would step in front of this one and fade it, but even the straddle seems a bit overpriced as you would need a move above $368.70 or below $306.30. The latter move, a move lower would seem to closely fill a gap below, but honestly this one could go either way. Even the options skew doesn’t offer much bias to be honest. All in all we would stay away from this one here at this point:

All in all the equity markets continue their push higher and there really isn’t anything standing in the way of this at this point. We need the FOMC rhetoric for rate cuts to pick up to give us a signal that markets may see profit taking, but until then higher prices seem to be the path of least resistance. The Nasdaq futures weekly resistance area is 21,955 and we are getting close:

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