AVGO Deep In-The-Money LEAPS Play - $50M Institutional Bet!

📅 October 16, 2025 | 🔥 Unusual Activity Detected

🎯 The Quick Take

Institutional traders just deployed $50M+ in deep in-the-money AVGO LEAPS with expirations stretching into 2027! These aren't your typical options trades - with strikes $134 below spot price, this is sophisticated money using options as leveraged stock replacements. Translation: Smart money is positioning for Broadcom's massive AI chip buildout through 2027, and they're betting big! 📊

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📊 Company Overview

Broadcom Inc. (AVGO) is a global semiconductor and infrastructure software powerhouse with:
- Market Cap: $1.66 Trillion
- Industry: Semiconductors & Related Devices
- Business Focus: AI accelerators, custom chips (XPUs/ASICs), networking solutions (Tomahawk/Jericho chips), infrastructure software (VMware), and enterprise security
- Key Position: Critical enabler of AI infrastructure for hyperscalers and data center operators

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💰 The Option Flow Breakdown

The Tape (October 16, 2025):

Time	Symbol	Side	Buy/Sell	Type	Expiration	Premium	Strike	Volume	OI	Size	Spot	Option Price
13:53:42	AVGO	ASK	BUY	CALL	2027-01-15	$32M	$220	2.9K	4.3K	2,012	$353.8	$159.55
13:39:42	AVGO	ASK	BUY	CALL	2027-06-17	$18M	$230	1.5K	405	1,129	$354.54	$160.15
13:39:42	AVGO	BID	SELL	CALL	2027-06-17	$1.8M	$230	265	405	110	$354.84	$160.25
13:39:42	AVGO	BID	SELL	CALL	2027-06-17	$1.8M	$230	113	405	110	$354.84	$160.25

Net Position: $50M in bullish long exposure through 2027 LEAPS (Long-term Equity Anticipation Securities)

🤓 What This Actually Means

This is a delta-one substitution strategy using LEAPS! The traders:

• Bought deep in-the-money $220 calls expiring January 2027 - strike is $134 below current price
• Added $230 calls expiring June 2027 - strike is $124 below spot
• These options have 70-85 delta, meaning they move almost 1:1 with the stock
• Small sell trades appear to be profit-taking from earlier positions, not new shorts

Why use options instead of stock?
- Leverage: Control $50M+ of stock exposure with less capital
- Defined Risk: Maximum loss is premium paid (vs. stock can go to zero)
- Time Horizon: 2027 expirations align perfectly with OpenAI partnership timeline
- Tax Efficiency: Potential for favorable long-term capital gains treatment

Unusual Score: 🏢 Size of a small hedge fund position - These $32M and $18M trades represent major institutional positioning, likely happening several times per quarter for large-cap semiconductors.

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📈 Technical Setup / Chart Check-Up

YTD Performance Chart

Broadcom is absolutely crushing it this year with +52.7% YTD performance - nearly doubling the returns of major tech indices! Starting from $231.98 in January, AVGO has climbed to $354.15 current price.

Key observations:
- Strong momentum: Recovery from April-May dip around $150 shows resilience
- Volatility: 54.1% implied volatility signals big moves expected (AI hype cycle)
- Max drawdown: -40.22% earlier this year, but stock recovered strongly
- Recent action: Breaking out to new highs in October on OpenAI catalyst
- Volume spikes: Heavy institutional interest especially in September-October

The chart shows a clear uptrend with AVGO establishing higher lows throughout 2025 - exactly the kind of price action that institutional traders love for long-dated call positioning.

Gamma-Based Support & Resistance Analysis

Current Price: $354.15

The gamma exposure chart reveals critical levels that options traders are watching:

🔵 Support Zones (Put Gamma Below Price):
- $350 - STRONGEST SUPPORT (25.9M total GEX, net bullish): This is the big one! Just $4 below current price with massive gamma concentration. Market makers will buy aggressively if price dips here.
- $340 (15.1M total GEX): Secondary support level providing strong floor
- $330 (13.1M GEX): Major psychological level with good gamma backing
- $320 (8.1M GEX): Deep support if market turns bearish
- $310-$300: Additional floors providing multi-layer protection

🟠 Resistance Zones (Call Gamma Above Price):
- $355 - IMMEDIATE RESISTANCE (8.1M total GEX): Currently testing this level
- $360 - MAJOR WALL (18.4M total GEX, strongest call gamma): This is where traders expect price to struggle. Heavy call selling creates headwinds.
- $370 (10.1M GEX): Secondary resistance if $360 breaks
- $375 (9.2M GEX): Psychological resistance zone

Summary Gamma Bias:
- Total Call GEX: 156.7M (bullish positioning)
- Total Put GEX: 85.5M (protective hedging)
- Net GEX: Bullish bias with 1.8x more call gamma
- Trading Range: Likely $340-$360 near-term with $350 acting as magnet

This gamma setup explains the LEAPS strategy perfectly - traders expect AVGO to grind higher through 2027, with strong support holding downside and resistance creating buying opportunities.

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🎪 Catalysts

🔜 Upcoming Events

Q4 FY2025 Earnings - December 11, 2025
- Management guidance: $17.4B revenue (up 24% YoY) with 67% adjusted EBITDA margins (Source: Broadcom Investor Relations)
- Key focus: AI semiconductor revenue trajectory and VMware integration progress
- Analysts expect strong results from continued hyperscaler AI spending (Source: MarketBeat)

OpenAI Custom Chip Deployment - H2 2026 Start
- Massive 10 gigawatt AI accelerator deployment representing ~$500B in infrastructure (Source: Reuters)
- Partnership announced October 13, 2025, sent AVGO up 10% on news (Source: CNBC)
- Deployment timeline: H2 2026 through end of 2029 - perfectly aligned with these 2027 LEAPS! (Source: OpenAI Official)
- Custom XPU chips and Ethernet networking solutions for massive AI clusters

$10B Mystery Customer Order
- Announced September 2025: $10 billion custom AI chip order from undisclosed customer (confirmed separate from OpenAI) (Source: CRN)
- Adds significant backlog visibility for 2026-2027
- Demonstrates multiple hyperscalers betting on Broadcom's custom silicon

Product Launch Cycle
- Thor Ultra (October 2025): Industry's first 800G AI Ethernet NIC shipped (Source: Broadcom Press Release)
- Jericho4: Enables distributed AI computing connecting 1M+ XPUs across data centers (Source: Broadcom Investor News)
- Tomahawk 6: Doubles bandwidth for AI scale-out networking (Source: Reuters)

Record Backlog Update
- Q3 2025: Consolidated backlog hit $110 billion (at least half from semiconductors) (Source: 24/7 Wall St)
- Provides strong revenue visibility through 2027 and beyond
- Majority of growth driven by AI infrastructure demand

✅ Recently Completed

Q3 FY2025 Earnings Beat (September 2025)
- AI revenue reached $12.2B, growing 220% year-over-year (Source: Yahoo Finance)
- Infrastructure software revenue: $6.8B (up 17% YoY) driven by VMware (Source: Alpha Spread)
- Generated $7B in free cash flow (44% of revenue) in Q3 (Source: Broadcom Investor Relations)

VMware Integration Success
- Over 90% of VMware's top 10,000 customers purchased VMware Cloud Foundation licenses (Source: The Register)
- Operating margins expanded to 76% for infrastructure software segment
- Successful transition from perpetual licensing to subscription model

Analyst Upgrades Wave
- Morgan Stanley: Raised price target to $409 (18% upside from current levels) (Source: Yahoo Finance)
- KeyBanc: Set target of $420 (19% upside)
- Consensus rating: Strong Buy with 27 Buy ratings and only 2 Holds (Source: TipRanks)

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🎯 Price Targets & Probabilities

Using the gamma levels, catalyst timeline, and technical setup:

🚀 Bull Case (35% chance)

Target: $400-$420 by mid-2026

• Breaks above $360-$370 gamma resistance on strong earnings
• OpenAI deployment begins ahead of schedule in H2 2026
• Additional hyperscaler partnerships announced (Google, Amazon)
• AI revenue trajectory exceeds expectations, approaching $80B+ by FY2027
• Free cash flow growth enables aggressive buybacks supporting price

This scenario makes the LEAPS extremely profitable - $220 calls would have $180-$200 of intrinsic value (vs. $159 paid)

😐 Base Case (45% chance)

Target: $340-$380 range through 2026

• Consolidates in current gamma band around $350 support
• Earnings meet expectations with steady AI growth
• OpenAI deployment timeline proceeds as announced
• VMware integration continues smoothly
• Stock grinds higher but faces resistance at $360-$370 levels

LEAPS remain solidly profitable - Deep ITM calls retain most of their value and benefit from time decay working in favor

😰 Bear Case (20% chance)

Target: $280-$320

• Customer concentration risk materializes (slowdown from top 3 XPU customers)
• Custom chip competitive pressure from NVIDIA or other players
• Broader semiconductor cycle downturn
• VMware integration hits regulatory or execution challenges
• AI infrastructure spending pause from hyperscalers

LEAPS would lose value but defined risk protects - Maximum loss is premium paid ($159-$160 per contract)

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💡 Trading Ideas

🛡️ Conservative: Follow the LEAPS Logic (Simplified)

Play: Buy Jan 2027 $280 calls or $300 calls

Cost: $70-$90 per contract (~$7,000-$9,000 per contract)
Risk: Premium paid (defined and limited)
Reward: Unlimited upside through 2027

Why this works:
- Gives you 14+ months for the OpenAI catalyst to play out
- Lower strikes = higher delta, more stock-like movement
- Defined risk vs. buying stock outright
- Aligned with institutional positioning we're seeing
- Benefits from gamma support at $300 level

Best for: Traders who believe in AVGO's AI story but want leverage without margin

⚖️ Balanced: Vertical Spread Strategy

Play: Bull call spread using near-term options

Buy Dec 2025 $350 calls, sell $370 calls

Cost: $8-$12 per spread (~$800-$1,200 per spread)
Max Gain: $20 per spread (width of strikes)
Max Loss: Premium paid
Breakeven: ~$358-$362

Why this works:
- Targets the $360 gamma wall as upside target
- Q4 earnings December 11 catalyst before expiration
- Reduced cost vs. naked calls
- Probability favors staying in gamma band
- Risk-reward ratio: ~2:1 potential

Best for: Swing traders who want to capture the earnings move with defined risk

🚀 Aggressive: Leverage the Dip Strategy

Play: Buy near-term slightly OTM calls on pullbacks to $345-$350

Buy Nov 2025 $355 calls or $360 calls if price pulls back

Cost: $10-$15 per contract when timing dips
Risk: Premium paid (can lose 100% on wrong timing)
Reward: 300-500%+ on breakout above $370

Why this works:
- Gamma support at $350 provides technical entry
- High volatility (54%) creates big swings
- Cheaper entry on dips to strong support
- Shorter dated = more gamma exposure
- Can pyramid into strength if $360 breaks

Best for: YOLO traders who can handle volatility and time their entries well

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⚠️ Risk Factors

Customer Concentration:
- AVGO's custom XPU revenue comes from just 3 large hyperscaler customers (Source: Rijnberkin Insights)
- Any slowdown in AI spending from Google, Microsoft, or Meta could materially impact results
- Single customer risk is real - we've seen this bite other semiconductor companies

Custom Chip Execution Risk:
- Previous attempts by Microsoft and Meta at custom chips faced setbacks vs. NVIDIA (Source: Reuters)
- OpenAI deployment is ambitious - any technical delays push revenue out
- Competition from NVIDIA's established ecosystem remains intense

Valuation Concerns:
- Trading at 89.5x trailing P/E ratio - already pricing in substantial growth (Source: Yahoo Finance)
- Analysts note shares trading near fair value with $409 price targets only 18% above current
- Limited multiple expansion room - growth must materialize

VMware Integration Challenges:
- $61B acquisition faces ongoing regulatory scrutiny
- European cloud providers filed antitrust complaint (Source: 24/7 Wall St)
- Subscription model transition could face customer pushback

Macro Semiconductor Cycle:
- Broader chip sector showing signs of cyclical slowdown
- AI infrastructure spending could pause if hyperscalers slow capex
- Interest rates and economic conditions affect enterprise software demand

Options-Specific Risks:
- High volatility (54%) = expensive options premiums
- Time decay works against option buyers, especially near-dated calls
- Liquidity: LEAPS may have wider spreads, harder to exit quickly
- Assignment risk for deep ITM calls if you're selling them

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🎯 The Bottom Line

Real talk: This $50M+ LEAPS flow tells us sophisticated institutional money is making a multi-year bet on Broadcom's AI infrastructure dominance. Using deep in-the-money calls as stock replacements shows conviction - these aren't speculative lottery tickets, they're strategic positions.

The timing makes perfect sense: 2027 expirations capture the OpenAI deployment cycle (H2 2026-2029) and the $10B mystery customer ramp. With $110B in backlog and AI revenue growing 220% YoY, AVGO is executing on one of the biggest semiconductor stories of the decade.

If you own AVGO: This flow validates your thesis - hold through the OpenAI catalyst. Consider selling calls against your position at $370-$380 strikes to collect premium.

If you're watching: Wait for dips to the $345-$350 gamma support zone for better risk-reward entries. The $360 resistance will likely cap near-term upside.

If you're bullish: Consider following the institutional playbook with LEAPS instead of stock - you get leverage, defined risk, and perfect alignment with the 2026-2027 catalyst timeline. Just size appropriately since options are 100% at risk.

Mark your calendar:
- December 11, 2025: Q4 earnings - expect AI revenue guidance updates
- H2 2026: OpenAI deployment begins - the real catalyst for these LEAPS
- 2027: VMware integration should be fully matured, custom chip revenue hitting full stride

The smart money is positioned. Now you know what they're betting on! 🎯

Disclaimer: Options trading involves substantial risk and is not suitable for all investors. This analysis is for educational purposes only and not financial advice. Past performance doesn't guarantee future results. Options can lose 100% of their value. Trade responsibly and never risk more than you can afford to lose.

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About Broadcom: Broadcom is a global semiconductor and infrastructure software provider with a $1.66 trillion market cap, designing custom AI chips, networking solutions, and enterprise software for the world's largest technology companies.