Hey Traders,
A couple days ago, I talked about why I don’t bed on a stock’s “expected move”
And as we saw with Nvidia, those expectations can burn option buyers fast.
Nvidia and the “Expected Move” Trap
Last week, options were pricing in a big swing for Nvidia’s earnings. Traders piled in, buying puts and calls hand over fist.
But the stock barely moved.
The result? Everyone who bought options lost money, because the big move was already baked into the price.
Unless the stock moves bigger and faster than the expected move, those contracts bleed out in a hurry.
Broadcom’s Setup Today
Fast forward to Broadcom (AVGO), reporting after the close today.
This morning, the at-the-money call was going for about $9.80. The put was about $10.20. Add them up, and you’ve got roughly a $20 expected move.
Sounds exciting — until you realize the stock has to blow past that $20 swing just for call or put buyers to break even. That’s a brutal setup if you’re paying those inflated premiums.
Why the Edge Is on the Sell Side
But don’t make the mistake of thinking I’m talking about just Nvidia or Broadcom.
Option prices across the board are sky-high.
I’ve never seen premiums this rich on so many names — not just in tech, but in plain-vanilla retail stocks.
The other day on Market Masters, Jeffrey Turnmire pointed out setups on Gap, Urban Outfitters, and Dollar Tree with premiums running about 40% above normal.
That’s free money for option sellers.
When premiums are inflated, selling puts, selling calls, and running credit spreads all put the odds in your favor. You’re collecting cash up front, and you don’t need a miracle move to win.
Bottom Line
Buying options into inflated premiums is a sucker’s bet. The odds are stacked against you.
But on the sell side? This is one of the best environments I’ve seen in years.
So don’t chase lotto tickets. Be the house. Collect the premium. Let everyone else overpay while you get paid.
Trade well,
Jack Carter
P.S. Consider Apple stock radioactive for the next 10 days. Don’t touch it! Here’s 3 tickers I’m watching instead!
