Selling Puts on AI’s Biggest Losers

During their recent episode of the Value Options Letter and Acquirers Podcast, Travis and Carlisle discussed Selling Puts on AI’s Biggest Losers. Here’s an excerpt from the episode:

[Tim] Yeah. So, the general theme was these stocks were high flyers trading at extremely high multiples to sales, to earnings, to cash flows, generally healthy balance sheets. But with the AI headlines, there really was the fear that almost all of these business models could be displaced.

And there was a major bifurcation because the actual earnings and revenues are growing, but the stock prices have just plummeted. And so, ServiceNow, looking at the 52-week high, so its 52-week high was 194. It got down to 81.

So, we sold puts when it was trading below 100, and we targeted areas in the 70s and maybe the 80s too, maybe even in the 60s. And the premiums were excellent. And one of the nice things about utilising options is that you might set a trade that has a January expiration, so six months out, whatever it is.

And if that stock rallies rapidly in the short term, you’re going to be able to close out that trade and take the vast majority of the profit. So, we actually, on the value options letter, a message just went out to subscribers today, actually, that we closed out a ServiceNow put, I think we made like 92, 93% of the target profit, and it still had like 60 days to run or something like that. But that whole theme, Toby, I mean, a few of the other ones like Workday, Workday, a very good firm, very strong.

And they sold down to the just above $100. We sold some puts on that, and now there’s talk about them getting bought out, and the stock price is near $200. So, obviously, if you would have bought it at the lows, that’s fantastic too.

But by taking advantage of the volatility that was there and selling the puts, it’s a good strategy. Adobe HubSpot’s another. And then even things like Meta, they had the legal kind of uncertainty where 48 of the states were suing them over the addiction of its products.

And they settled, it looks like today, for $18 billion, which is a huge, crazy number. But last I looked, the stock was up a little bit. But that’s what volatility has allowed us to manufacture positions on these stocks at attractive returns.