Hedging Equity Concentration: Lessons from Broadcom and the AI Supply Chain

Hook: When a few AI names can make—or break—your portfolio

If more than 20–30% of your public equity wealth sits in Broadcom, Nvidia or a handful of AI/semiconductor names, you know the feeling: enormous upside—and the stomach‑churning drops when AI rotations or semiconductor cycle headlines hit. In 2026, with AI supply chain demand still concentrated and headline risk elevated after late‑2025 volatility spikes, concentration risk is a real portfolio management problem. This guide gives pragmatic, tradeable hedges—index puts, single‑stock options, collars—and clear sizing rules so you can protect capital without erasing your upside.

Why concentration in Broadcom/Nvidia deserves a dedicated hedge in 2026

Broadcom and Nvidia became core holdings for many institutional and retail investors during the AI re‑acceleration from 2023–2025. Broadcom surpassed major cap thresholds and expanded across infrastructure, while Nvidia continued to command GPU share in AI compute. That setup creates a two‑way risk:

• Idiosyncratic event risk: company‑specific issues (supply‑chain, regulatory, guidance misses) can cause sharp drops.
• Systemic re‑rating: a rotation away from AI hardware can punish high‑beta names faster than the market.

Hedging must be pragmatic: affordable, scalable, and tailored to conviction. Below I lay out multiple tools and show how to size them to conviction, correlation, and cost.

Hedging tools that work for AI/semiconductor concentration

Start by categorizing hedges into three buckets: index hedges, single‑stock derivatives, and cost‑managed collars. Each has tradeoffs in basis risk, cost, and operational complexity.

1) Index puts (QQQ/SPY/put spreads)

When to use: you believe a broad tech/AI drawdown will hit your positions, or you want cheaper protection via correlation with an ETF (e.g., QQQ for AI and mega‑cap tech exposure).

• Pros: deep liquidity, lower bid‑ask spreads, easier execution, less counterparty risk.
• Cons: basis risk — the index may move differently than a single stock. NVDA/Broadcom can move more (or less) than QQQ.

How to size: Hedge notional = position value × desired coverage × beta_stock_vs_index.

Example: You have $1,000,000 total equity; NVDA = $400,000 (40%). NVDA beta to QQQ ≈ 2.0 (historical, use live data to confirm). You want to protect 50% of NVDA position vs an index drawdown. Index hedge notional = $400,000 × 0.5 × 2.0 = $400,000 notional QQQ protection. If a QQQ put contract controls $100 × QQQ price (or use SPX multipliers), size contracts accordingly.

2) Single‑stock protective puts

When to use: you’re worried about idiosyncratic downside (company guidance, supply‑chain shock) and want direct, one‑to‑one protection for a stock like Broadcom or Nvidia.

• Pros: precise hedge, no index basis risk, can define strike and expiry.
• Cons: expensive for high‑IV stocks; may be less liquid on deep‑OTM strikes.

Sizing with option delta: because options have delta < 1, you must buy more than 1 contract per 100 shares to reach a notional hedge. Use the formula:

Contracts needed = (shares × price) × desired_coverage / (contract_multiplier × price_of_underlying × |delta|)

Practical example: You hold 2,000 NVDA shares at $400 (position = $800,000). You want to protect 60% of value for 3 months with a 10% OTM put whose delta = -0.30. Contract multiplier = 100.

1. Desired protected notional = $800,000 × 0.6 = $480,000.
2. Single contract hedge (delta basis) = 100 × $400 × 0.30 = $12,000 effective hedge per contract.
3. Contracts needed = $480,000 / $12,000 = 40 contracts.

That gives rough sizing. Use market deltas and adjust for gamma and time decay. If IV is elevated (typical for hot AI names), cost is higher—consider longer‑dated LEAP puts if you want multiyear insurance with smoother annualized premium.

3) Collars and zero‑cost collars

When to use: you want downside protection and are willing to cap upside. Collars are practical for taxable investors or concentrated positions where selling would create unwanted tax events.

• Standard collar: buy a protective put and finance it by selling a covered call at a higher strike.
• Zero‑cost collar: set strikes so premium from call sale roughly funds put purchase.

Example structure for Broadcom (AVGO): Long 1,000 AVGO shares at $900. You want to protect to a 20% downside for six months but will cap upside at 25%:

1. Buy 10 puts (100‑share contracts) with strike = $720 (20% down) expiring in six months.
2. Sell 10 calls with strike = $1,125 (25% up) same expiry. If call premium ≈ put premium, net cost ≈ $0 (subject to transaction costs and bid/ask).

Tax point: selling calls creates short‑term gains if assigned; discuss with tax advisor. Also, assignment risk exists if the stock rallies beyond the call strike before expiry.

Sizing hedges by conviction and cost: a practical framework

Investors face a tradeoff: full protection is costly and reduces upside. Here’s a step‑by‑step framework to pick a hedge that reflects conviction and cost tolerance.

Step 1 — Define your objective (time horizon & loss tolerance)

• Protection horizon: 1 month / 3 months / 1 year / multi‑year LEAP.
• Max acceptable drawdown: e.g., 15% loss before hedge must kick in.
• Opportunity cost: how much upside are you willing to cap?

Step 2 — Map coverage to conviction

Use a simple mapping:

• High conviction (you expect long‑term outperformance): protect 30–60% with collars or long‑dated LEAPs. Keep some exposure to upside.
• Medium conviction: protect 50–80% with 3–9 month puts or index hedges sized by beta.
• Low conviction / near‑term event risk: protect 80–100% with ATM/ITM puts or put spreads during the event window.

Step 3 — Choose cost‑efficient instruments

Cost considerations as of early 2026:

• Option implied volatility for AI stocks remained historically elevated after late‑2025 earnings cycles; expect higher premiums on short‑dated outright puts.
• Using spread structures (put spreads) can cap maximum hedge payoff but reduce premium by selling a lower strike put.
• Zero‑cost collars are attractive when you want protection and can tolerate capped upside; they are especially useful for taxable investors deferring capital gains realization.

Step 4 — Execute and monitor with triggers

Implement rules: e.g., sell hedge if the stock rallies +25% (take profits to pay for hedge), or roll hedges when IV falls or cost becomes untenable. Use alerts for implied volatility spikes and earnings dates.

Concrete examples: three real‑world scenarios

Below are reproducible, numeric scenarios to help you translate the framework into trades.

Scenario A — High conviction in Broadcom, want long‑term insurance

Profile: $2M portfolio, AVGO = $800k (40%). You expect Broadcom to continue benefiting from AI infrastructure for 3+ years but want catastrophe protection.

1. Buy 1‑year LEAP puts at 25% OTM covering 50% of position. LEAPs lower annualized cost compared with rolling short‑dated puts when IV is elevated.
2. Fund by selling 1‑year OTM calls equal to ~40% of the notional to lower net premium (partial collar).
3. Expected outcome: limited downside to -25% on protected portion, retain upside on uncovered portion.

Scenario B — Short‑term event: Nvidia earnings + supply‑chain rumor

Profile: $1M, NVDA = $600k (60%). You fear a 30% gap down around an earnings or supply‑chain event next 6 weeks.

1. Buy 30‑day ATM puts on NVDA to protect 60% of position. If ATM puts cost too much, buy 10% OTM puts and sell a further OTM put to form a put spread to limit cost.
2. Alternatively, buy SPX/QQQ put protection sized to NVDA via beta if you expect broader tech weakness.

Scenario C — Tax‑sensitive investor with concentrated position

Profile: taxable account, large unrealized gain in Broadcom; selling taxable stock is unattractive.

1. Implement a 6–12 month collar: buy puts to limit downside, sell calls at a strike that funds the put. This defers the taxable event and buys time to tax‑plan.
2. Use cash‑secured collars to avoid margin and assignment surprises.

Advanced techniques to reduce cost without sacrificing protection

If premiums are high, consider these pragmatic alternatives:

• Put spread (bear put spread): buy a higher strike put and sell a lower strike put. Cuts premium while keeping core downside protection.
• Calendar/diagonal spreads: buy longer dated protection and sell shorter dated options against it to lower net cost over time.
• Delta‑hedged equity option synthetics: construct protective positions using CFDs or OTC instruments if available and compliant with your jurisdiction.
• Dynamic overlays: use stop‑loss or systematic rebalancing to reduce the need for constant option purchases (less precise, more reactive).

Risks, costs, taxes and operational considerations

Hedging is not free and brings its own risks. Key things to account for:

• Basis risk: index hedges can underperform or overprotect versus the single stock.
• Gap risk: overnight events can gap through option strikes if illiquid; consider size and exchange liquidity.
• Transaction costs: wide option spreads on less liquid strikes increase effective cost; use limit orders and consider block sizes.
• Tax treatment: option premiums and assignments have tax consequences. Collars can defer recognition; consult a tax professional for 2026 rules and any wash‑sale implications.
• Broker/platform risk: ensure your broker supports the strategies, margin requirements, and offers sufficient option chain depth for NVDA/AVGO.

Rule of thumb: never hedge more than you can monitor. An over‑hedged, unattended options book can become a new source of risk.

Monitoring and adjustment — keep hedges live, not static

Set weekly or event‑driven reviews. Key triggers to adjust or roll hedges:

• Stock moves > 15–25%—recalculate exposure and rebalance hedge notional.
• IV collapses—consider closing puts and re‑establishing cheaper protection or rolling to longer dated if warranted.
• Major news (earnings, regulatory announcements, macro events)—either increase short‑term protection or reduce it if news reduces uncertainty.

Cross‑asset hedges and portfolio diversification

For concentrated AI/semiconductor exposure, consider modest cross‑asset hedges:

• Fixed income: increase duration or buy put options on treasury futures if you fear growth shocks will drive real rates lower and hurt cyclicals.
• FX: if your exposure includes offshore revenue, hedge currency risk that could amplify equity moves.
• Commodities/crypto: not typically correlated with semiconductors but can act as alternative risk diversifiers if correlation patterns change.

2026 market context and why this matters now

Entering 2026, several trends make prudent equity concentration hedging especially relevant:

• AI adoption continues but is concentrating compute demand among a few winners—heightening idiosyncratic volatility.
• Options markets for major AI names remain relatively liquid but with episodic IV spikes around product cycles and regulatory news (late‑2025 showed this dynamic).
• Macro regime uncertainty—policy adjustments in 2025 and geopolitical supply‑chain signals—means tail events are still priced into premium for many high‑beta tech names.

In short: the tools work, but you must match instrument, strike, and tenor to your view and risk budget.

Checklist: Implementation in 10 actionable steps

1. Quantify concentration: % of portfolio in Broadcom/Nvidia/AI names.
2. Decide protection horizon and max acceptable drawdown.
3. Choose instrument: index puts for systemic risk, single‑stock puts for idiosyncratic risk, collar for tax/time management.
4. Estimate beta and correlation to size index hedges.
5. Use delta to size single‑stock option contracts.
6. Consider spread structures (put spreads/collars) to control cost.
7. Check option liquidity and spreads; avoid thin strikes.
8. Execute with limit orders and stagger expiries for smoother roll risk.
9. Set monitoring rules and rebalancing triggers (price/IV/news).
10. Document tax and operational implications; consult advisor for complex positions.

Final takeaways

Hedging concentrated AI/semiconductor exposure is about tradeoffs: you can buy near‑perfect insurance with on‑the‑money single‑stock puts, but it’s expensive, especially when implied volatility is high. Collars and index hedges lower cost but introduce basis or upside cap risks. The right choice depends on conviction, time horizon, and tax/operational constraints. Use the sizing rules above—beta for index hedges, delta for single‑stock options—and prefer staged, monitored hedges rather than one‑off trades.

In 2026’s AI‑driven market, protection matters more than ever. Protect intelligently, size to conviction, and keep your strategy adaptive.

Call to action

Ready to build a tailored hedge for your AI/semiconductor concentration? Download our Hedging Toolkit for templates, calculators (delta and beta sizing), and trade examples, or schedule a consultation with our hedging desk to create a plan that fits your tax and risk profile.

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