How Volatility Creates Opportunities in Meta, Visa, and Mastercard

During their recent episode of the Value Options Letter and Acquirers Podcast, Travis and Tobias discussed How Volatility Creates Opportunities in Meta, Visa, and Mastercard. Here’s an excerpt from the episode:

[Tim] Yeah. Yeah. I think Meta, the value options letter did have a trade this week on Meta.

And so you have higher volatility. So we talked about the Greeks a little bit earlier. Volatility is a little higher.

I think people are just a little bit scared in the short term. The market’s had kind of a big run. There’s been a lot of prominent analysts that have said maybe we’re due for a pullback.

So you can kind of take advantage of that volatility and buy high quality companies at large discounts to our estimates of intrinsic value and take advantage. I mean, there’s other quality names like MasterCard, Visa. There’s really good companies that if you look at their historical average, Standard & Poor’s, they’re trading at very large discounts to their historical averages.

They have good fee free cash flow, not high CapEx in some of those like Standard & Poor’s for instance. And utilising options, you can manufacture cheaper entry prices or benefit from the premiums. And one of the good things, one of the underrated things about options is that it allows you to kind of reload the gun.

And I’ll give you an example, Toby. So as you know, we’ve talked about it a lot over the years, but I’ve invested off and on, usually on Assured Guaranty for 17 or 18 years since the financial crisis. And that stock has grown book value almost exponentially because of buybacks done at large discounts to tangible book value, retained earnings.

It’s not a great business. It’s an average business. It’s okay.

But it does have great capital management. And you have a name like this, it’s not a big growth stock or anything like that. But using options, you can just keep reloading that gun and collecting premiums.

And even if you go out like a year, so you’re maximising that time value like we talked about earlier, Toby, well, they’re still buying back stocks at discounts. And often that tangible book value per share goes up by like 10% a year, 10, 13% a year from retained earnings and buybacks. And it makes your position, the strike price you sold or put at less risky.