Apple supplier Broadcom Inc (NASDAQ:AVGO) touched an all-time high of $307.35 earlier today before turning lower. However, the semiconductor concern could have more gas in the tank, if history is any indicator, and speculators may want to consider buying short-term AVGO calls.
Broadcom shares gapped higher on March 15 after the company's strong earnings showing. Since then, AVGO stock has chugged even higher on the charts, and has rallied more than 55% since its July 12 low under $200. At last check, the equity has erased its early intraday gains, down 0.7% at $303.55.
First off, seasonality is on AVGO's side. The security has emerged as one of the best stocks to own in the second quarter, averaging a 5.27% gain over the past 10 years, per recent data from Schaeffer's Senior Quantitative Analyst Rocky White.
Meanwhile, not only is AVGO flirting with all-time highs, but its short-term options are inexpensive following the post-earnings volatility crush. The stock's Schaeffer's Volatility Index (SVI) of 23% is higher than just 6% of all other readings from the past year, suggesting muted volatility expectations are being priced into near-term options.
Since 2008, there have been just four other times when Broadcom stock was within striking distance of a new high while simultaneously sporting an SVI in the bottom 20% of its annual range. AVGO was higher one month after each of those signals, averaging a gain of nearly 5%. Traders who believe past is prologue may want to consider scooping up near-term calls to speculate on higher highs for the shares.
Meanwhile, there's still room on the bullish bandwagon, even though AVGO has outperformed the S&P 500 Index by a healthy margin in the past three months. The consensus 12-month price target among analysts sits at just $311.41 -- a stone's throw from current levels -- leaving the door wide open for price-target hikes to lure more buyers to the table. Today, in fact, KeyBanc upped its AVGO target to $335.
An exodus of option bears could also be a boon for the Apple supplier. While the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.93 indicates that call open interest outnumbers put open interest among options expiring within three months, this ratio registers in the 90th percentile of its annual range. In simpler terms, short-term options traders are currently more put-heavy than usual.