Without question, artificial intelligence has sparked a paradigm shift in the business ecosystem, driving additional relevance for semiconductor specialists like Broadcom Inc (NASDAQ:AVGO). However, it’s also fair to point out that investors demonstrated signs of fatigue or at least rising concerns tied to excess valuations. In the trailing month, AVGO stock incurred a loss of roughly 10%. Still, the extended bearish pressure could offer a contrarian opportunity.
Although Broadcom consistently brings home the goods when it comes to earnings performances, the latest strong print wasn’t enough to bolster its lofty share price. Due to lower-than-expected AI gross margins, along with concerns about China’s chip competition, AVGO stock incurred a rush for the exits. On Dec. 17, the security closed at $326 before reflexive sentiment brought it back to around the $350 range.
As circumstances stand, there are two basic ways to approach AVGO stock, particularly from an options trading perspective. First, probably the most common approach is to rely on human (or perhaps non-human) interpretation of the various fundamental and technical factors influencing the price discovery process. Second, there is the quantitative approach, where practitioners attempt to uncover mispricings from empirical trends.
In other words, you can trade with your gut or with the data.
Realistically, it’s not an absolute either-or situation. Options trading is a lot like baseball. Ahead of the game, managers and players prep for the opposition — and this preparation is very much quantitative. While outcomes obviously can’t be predicted with precision, the sport’s sabermetrics demonstrate that, over repeated occurrences, tendencies of where the ball is put into play materialize. Still, there’s also room for in-the-moment decisions, thus creating a dynamic environment.
Similarly, stocks also exhibit behavioral biases, depending on how they’re struck, so to speak. Therefore, the whole point of my quantitative approach to the market is that we can forecast how a security may respond given the current condition that …