Bullish speculators seemingly lack no shortage of justifications for their stance in semiconductor and software giant Broadcom Inc. (NASDAQ:AVGO). Earlier in the week, AVGO stock shot up amid the backdrop of the U.S. government announcing its latest round of sanctions, specifically targeting the Chinese semiconductor industry.
Notably, the Biden administration's export controls will likely impose additional challenges for Chinese chipmakers. In turn, the obstruction may shift demand toward alternative suppliers like Broadcom. With the company leveraging a substantial presence in high-bandwidth networking chips and custom semiconductors – both being critical for artificial intelligence – AVGO stock may have become a geopolitical beneficiary.
A day later, Benzinga reported unusual options activity of a noticeably bullish posture entering the derivatives arena. On the optimistic end, a pricing analysis revealed the possibility of AVGO stock reaching $195 per share. At the same time, pessimists appeared to target the $115 level.
So far, the bulls have been gaining control of the overall narrative. On Thursday, the company launched its 3.5D eXtreme Dimension System in Package (XDSiP) technology. This innovation enables consumer AI customers to develop advanced accelerators (XPUs). With multiple upside catalysts to point to, many adventurous investors may see little reason to consider the short side of the argument. However, surprising pricing dynamics may imply a much wider-than-expected playground.
It’s true that over the past one-year period, AVGO stock returned nearly 89%. However, on a day-to-day basis – defined as the performance between the opening and closing prices of the same session – there are more down days (131) than there are up days (121).
The Direxion ETFs: Such a counterintuitive framework segues into a discussion of leveraged and inverse exchange-traded funds. For traders who anticipate that a positive session is about to materialize, the Direxion Daily AVGO Bull 2X Shares (NASDAQ:AVL) could offer a tempting opportunity. On the other end of the equation, pessimists may consider the Direxion Daily AVGO Bear 1X Shares (NASDAQ:AVS).
Primarily, a central selling point of Direxion's financial products is convenience. With either AVL or AVS, a trader can acquire them much like buying publicly traded stocks. Furthermore, both leveraged or short trades are made possible with these unique ETFs. Otherwise, speculators would have to turn to the options market exclusively, which may introduce additional complexities.
However, Direxion warns that both the AVL or AVS are designed for trades lasting no longer than one day. Holding onto leveraged or inverse ETFs for longer than recommended can result in value erosion due to the underlying daily compounding effect.
The AVL ETF: A relatively new product, AVL is down 19% since its introduction. However, the strong performance of AVGO stock recently has led to an almost 12% lift over the past five sessions.
- Although the trend since its launch doesn't appear compelling, AVL's recent market action drove the price above its 20-day exponential moving average.
- Interested investors should take note of the rising volume trend since late November, indicating brewing optimism.
The AVS ETF: On the other side of the fences, the AVS ETF gained nearly 9% since making its public market debut. However, a choppy price action warrants a cautionary posture.
- What makes AVS a tricky proposition is the materialization of a broadening top formation, also known as a megaphone pattern. This development indicates rising entropy, presenting a difficult trading environment.
- Another factor to watch closely is the volume level. Since roughly the middle of November, participation has dropped significantly, implying far less interest in the bearish trade. Still, the daily data demonstrates that this context can change.
Feature photo by Pete Linforth on Pixabay
