Constructing an Options Collar for Broadcom Ahead of AI Catalyst Events

Hook: Capture Broadcom’s AI Upside Without Sleeping at the Desk

Pain point: you want exposure to Broadcom’s potential AI-driven re-rating but the market is jittery—earnings, macro shocks, and sudden IV swings can wipe out gains. A well-constructed options collar is one of the most practical, trader-friendly ways to keep upside participation while limiting downside during volatile catalyst windows in 2026.

Why a collar for Broadcom (AVGO) matters in 2026

Broadcom’s profile as a diversified semiconductor and enterprise software company — and its scale (market cap exceeded $1.6 trillion in the AI rally) — makes it a natural candidate for event-driven upside. Late-2025 and early-2026 developments (strong enterprise AI demand, software integration trends, and renewed capex cycles) increased the odds of a significant re-rating. But these same catalysts bring volatility: earnings beats can be followed by IV crush, while macro headlines can trigger sudden drawdowns.

That’s where a collar helps: it locks a practical band of outcomes, letting you benefit from a near-term rerate without exposing your entire position to tail risk.

What a collar is — fast

A traditional collar combines three pieces:

• Long the underlying stock — your bullish exposure.
• Long a protective put — the floor that limits downside.
• Short a covered call — the cap that generates premium to offset the put cost (or create a net credit).

It’s a directional, income-financed hedge that preserves upside to a capped price while limiting losses below the put strike.

When to use a collar on Broadcom in 2026

• You're bullish on an AI re-rating over a 1–6 month window but want protection from short-term volatility.
• You’re holding a concentrated stake and want to reduce drawdowns while keeping tax-efficient exposure.
• You expect elevated implied volatility (IV) into an event and want to monetize that IV on the short call.
• You prefer explicit, quantifiable risk instead of dynamic hedges that require constant adjustment.

Step-by-step collar construction: practical rules for Broadcom

Below is a repeatable process you can apply in any market environment. Each step includes the reasoning you need to make choices around strike selection, expirations, and position sizing.

Step 1 — Position sizing and capital allocation

• Decide how much stock exposure you want: start with a single lot (100 shares) for clarity, then scale.
• Limit concentrated risk: cap the dollar amount at a percentage of portfolio (e.g., 2–5% for concentrated traders).
• Ensure enough buying power for margin or assignment. A collar reduces margin usage once established, but selling calls can carry assignment risk.

Step 2 — Choose the time frame (expiration)

Match the collar duration to the catalyst horizon:

• Short-term (1–6 weeks): tactical hedge around earnings or a specific AI product release.
• Medium-term (1–3 months): ideal for near-term re-rating windows while still collecting meaningful premium.
• Long-term (3–6+ months): use when you expect a multi-quarter re-rate but want ongoing protection (accept lower call premium).

Rule: If you’re seeking to capture a single catalyst (e.g., an analyst day or earnings), choose an expiration that brackets the event but consider the IV spike — we’ll address IV management below.

Step 3 — Select the protective put strike

Pick the put by the amount of downside you’re willing to tolerate:

• Conservative: buy a put 10–15% below current price for tight protection but higher cost.
• Balanced: buy a put 20% below for meaningful protection at a moderate premium.
• Cheap floor: buy a deep put (25–35% lower) to protect against catastrophic loss while preserving capital.

Tip: choose a put with reasonable liquidity and delta 0.20–0.35 for effective, cost-efficient protection. Higher delta (~0.40+) gives more immediate protection but costs more.

Step 4 — Sell the covered call strike

Choose the call strike to define the upside cap and collect premium:

• Sell an OTM call 5–15% above current price if you want to retain most upside and collect modest income.
• Sell an ATM or slightly ITM call for maximum premium (often used when you’re willing to be called away).
• Use the same expiration as the put to keep the hedge simple and align P&L windows.

Rule: the call strike determines your maximum sale price. If a re-rating target exceeds your call, be ready to roll or accept assignment.

Step 5 — Net premium and cost evaluation

Calculate the net premium: call credit minus put debit. There are three outcomes:

• Net debit collar: you pay to put on the collar, lowering your effective carry.
• Zero-cost collar: premium collected equals put cost — common for balancing protection and upside.
• Net credit collar: you receive cash up-front, providing a buffer and enhancing yield.

Check how the net premium changes your break-even and maximum loss. If you receive credit, you’ve built in extra downside cushion.

Illustrative example (framework, not advice)

To ground these steps, here’s an illustrative numeric example. This uses a hypothetical current share price to show math; always plug in live quotes before trading.

Illustrative: assume Broadcom (hypothetical) = $1,000. You own 100 shares.

• Buy 1 Put, strike $800 (20% below) — put premium = $40 (debit $4,000)
• Sell 1 Call, strike $1,100 (10% above) — call premium = $30 (credit $3,000)
• Net cost of collar = $1,000 debit (0.1% of $100,000 position or 1% of notional)

Key outcomes:

• Max downside: if stock drops below $800, your effective loss is limited to $200 per share minus the $10 net premium paid = ~$190 per share.
• Max upside: you keep gains up to $1,100; beyond that, you’re capped and may be assigned at $1,100.
• Break-even on initiation vs. current price: $1,000 + net debit per share = $1,010.

That collar converts an open-ended equity risk into a known band between $800 and $1,100 for a predictable cost. If the call premium had been higher than the put premium, the collar could have been entered for a net credit — a common structure when IV is skewed toward puts or calls.

Implied volatility, earnings, and AI-catalyst timing

Understanding IV is essential:

• IV into earnings or AI announcements is usually elevated. Buying puts before an IV spike is expensive; selling calls when IV is elevated can fund protection.
• IV crush: after the event, IV often drops — this can hurt a protective put’s value. A collar offsets this because the short call premium benefits you up-front.
• Skew matters: check put-call IV skew. If puts are dear relative to calls, zero-cost collars are easier to construct.

Practical rule: If your primary worry is an earnings drawdown, consider buying a nearby put and selling a farther-dated call (vertical mismatch) only if you can manage rollover complexity. For most traders, same-expiration collars are simpler and more robust.

Greeks, assignment risks and what moves the collar P&L

Key sensitivities:

• Delta: the combined delta of a collar is smaller than owning the stock outright (the put reduces delta, the call offsets upside).
• Theta: selling the call generates positive theta (time decay income), helping offset the put’s negative theta.
• Vega: buying the put increases vega exposure (benefits if IV rises); selling the call reduces vega (hurts if IV rises). The net vega depends on strikes and deltas.
• Assignment: short calls can be assigned early if they become ITM, particularly around ex-dividend dates. Have a plan for assignment (sell stock, roll, or accept sale).

Adjustment and roll rules

Markets move. Predefine how you’ll adjust if Broadcom rallies or falls sharply.

• Stock rallies near the short-call strike: roll the call up and out to capture new upside while possibly collecting premium. Confirm new IV and cost.
• Stock drops near the put strike: consider rolling the put down and out if you want continued protection but want to reduce premium outlay.
• Event passes and implied volatility normalizes: you can close the collar, keep the stock, or rebuild a new collar if new catalysts emerge.
• If assigned early on the call: buy back the call and reassess whether you want to continue owning the stock — you’ll likely be sold at the strike price.

Tax, execution, and operational considerations

Practical details traders often miss:

• Tax lots: if you’ve held the stock for long-term capital gains, assignment will create a taxable event. Collars themselves don’t change holding period until stocks are sold or assigned.
• Commissions & slippage: use limit orders and stagger entries when liquidity is thin on certain strikes.
• Liquidity: prefer strikes with reasonable bid-ask spreads; wide spreads can turn small edges into losses.
• Paper test: run the collar in a simulator or paper account before committing significant capital.

Advanced variants and enhancements

If you want to fine-tune collars for higher return or lower premium, consider:

• Skewed expirations: buy a longer-dated put and sell a shorter-dated call to reduce put cost (complex to manage but can be effective).
• Put spreads: buy a higher put and sell a lower put to reduce cost while keeping partial protection.
• Call diagonals: sell further-dated or nearer ITM calls if you want higher credit but accept assignment risk.
• Zero-cost or net-credit collars: use IV skew to construct a zero-cost collar; be mindful that a large credit can imply a tight upside cap.

Monitoring checklist — daily and event-driven

1. Check IV rank and skew daily when within two weeks of a catalyst.
2. Monitor delta exposure: if net delta passes a threshold (e.g., 0.50 of open equity), rebalance.
3. Set alerts for price triggers at your put and call strikes.
4. Prepare for assignment 2 business days before ex-dividend dates and expiration.

Real-world example: a trader’s playbook

Here is a short playbook used by our trading desk in 2026 during AI-driven re-rating phases:

• Time horizon: 2–3 months around an analyst day and earnings cycle.
• Put strategy: buy a 20% OTM put with delta ~0.25 to cap severe downside.
• Call strategy: sell a 10% OTM call to collect premium, accepting potential assignment if re-rating occurs fast.
• Adjustment trigger: if stock moves >15% in either direction within 10 trading days, reassess collar strikes and roll as needed.

That framework preserves upside to a targeted exit level while keeping drawdowns manageable — exactly what many traders want during speculative AI-led rallies.

Common mistakes and how to avoid them

• Failing to account for assignment — always maintain capital or a rollback plan.
• Letting collars run without monitoring IV and earnings — high IV increases both cost and opportunity to sell premium.
• Selling calls too close to the money when you want to remain fully exposed — know your upside tolerance.
• Using illiquid strikes — widen your net to liquid expirations and strikes to minimize slippage.

Actionable takeaways

• Match duration to catalyst: pick expirations that bracket the AI event or earnings you expect to drive re-rating.
• Use percent-based strikes: put ~15–25% OTM as a standard starting point and call ~5–15% OTM for upside capture.
• Watch IV skew: use call premium to fund puts when skew favors it — you can often construct zero-cost collars in elevated-IV markets.
• Predefine roll/assignment rules: that’s how disciplined traders avoid emotional mistakes during strong moves.

Final thoughts

In 2026, the intersection of AI demand and semiconductor utility makes Broadcom an attractive target for tactical, event-driven trades. A thoughtfully executed collar lets you participate in that re-rating while explicitly limiting the downside you can stomach. It’s not about eliminating risk — it’s about managing it, quantifying outcomes, and aligning the trade with your risk budget and tax plan.

Next steps (call-to-action)

Want to build this collar using live quotes and a calculator tailored to AVGO? Paper-test a collar in your platform and use our collar worksheet to compute net premiums, break-even, and scenario P&L. Subscribe to tradersview.net for real-time option chains, IV analytics, and weekly collar trade ideas aligned to the latest AI catalysts.

Start now: simulate a 1-lot collar, set price/IV alerts for your strikes, and document your roll/assignment rules before you trade. The best hedges are the ones you can actually manage in real time.

Related Reading

• How to Host a Legal Public Screening of a Super Bowl Halftime Show and a Match
• MagSafe for Moms and Dads: Wallets, Chargers and Gadget Hacks for Busy Parents
• How to Use Bluesky’s New Features to Promote Your Stream or Team
• Sony Pictures Networks India Reorg: What It Means for Regional Content, OTT Platforms and Viewers
• Rapid Micro-Apps for Quantum Teams: Build an Experiment Decision Tool in a Weekend