Global Market Comments
February 17, 2021
Fiat Lux
Featured Trade:
(HOW TO HANDLE THE FRIDAY, FEBRUARY 19 OPTIONS EXPIRATION),
(TSLA), (MS), (BA), (BLK), (GS), (AMD), (KO), (BAC), (NFLX), (AMZN), (AAPL), (INTU), (QCOM), (CRWD), (AZN), (GILD)
Tag Archive for: (CRWD)
Followers of the Mad Hedge Fund Trader Alert Services have the good fortune to own no less than 16 deep in-the-money options positions, all of which are profitable. All but one of these expire in two trading days on Friday, February 19, and I just want to explain to the newbies how to best maximize their profits.
It was time to be aggressive. I was aggressive beyond the pale.
These involve the:
Global Trading Dispatch
- (TSLA) 2/$650-$700 call spread 20.00%
- (TSLA) 3/$600-$650 call spread
- (MS) 2/$55-$60 call spread 10.00%
- (BA) 2/$150-$160 call spread 10.00%
- (BLK) 2/$640-$660 call spread 10.00%
- (GS) 2/$240-$260 call spread 10.00%
- (AMD) 2/$75-$80 call spread 10.00%
- (BAC) 2/$28-$30 call spread 10.00%
- (KO) 2/$44-$47 call spread 10.00%
Mad Hedge Technology Letter
- NFLX 2/ $510- $515 call spread 10.00%
- AMZN 2/ $3,095- $3,100 call spread 10.00%
- AAPL 2/ $126-$129 call spread 10.00%
- INTU 2/ $340-$345 call spread 10.00%
- QCOM 2/ $135-$140 call spread 10.00%
Mad Hedge Biotech & Healthcare Letter
- (AZN) 2/$46.50-$49.50 call spread 10.00%
- GILD 2/ $57-$60 call spread 10.00%
Provided that we don’t have a huge selloff in the markets or monster rallies in bonds, all 15 of these positions will expire at their maximum profit point.
So far, so good.
I’ll do the math for you on our oldest and least liquid position, the Tesla February 19 $650-$700 vertical bull call spread, which I initiated on January 25, 2021 and will definitely run into expiration. At the Friday high, Tesla shares were at a lowly $816, some $53 lower than the $869.70 that prevailed when I strapped on this trade.
Provided that Tesla doesn’t trade below $700 in two days, we will capture the maximum potential profit in the trade. That’s why I love call spreads. They pay you even when you are wrong on the direction of the stock. All of the money we made was due to time decay and the decline in volatility in Tesla stock.
Your profit can be calculated as follows:
Profit: $50.00 expiration value - $44.00 cost = $6.00 net profit
(4 contracts X 100 contracts per option X $6.00 profit per options)
= $2,400 or 20% in 18 trading days.
Many of you have already emailed me asking what to do with these winning positions.
The answer is very simple. You take your left hand, grab your right wrist, pull it behind your neck, and pat yourself on the back for a job well done.
You don’t have to do anything.
Your broker (are they still called that?) will automatically use your long position to cover your short position, canceling out the total holdings.
The entire profit will be credited to your account on Monday morning February 22 and the margin freed up.
Some firms charge you a modest $10 or $15 fee for performing this service.
If you don’t see the cash show up in your account on Monday, get on the blower immediately and find it.
Although the expiration process is now supposed to be fully automated, occasionally machines do make mistakes. Better to sort out any confusion before losses ensue.
If you want to wimp out and close the position before the expiration, it may be expensive to do so. You can probably unload them pennies below their maximum expiration value.
Keep in mind that the liquidity in the options market understandably disappears, and the spreads substantially widen, when security has only hours, or minutes until expiration on Friday, February 19. So, if you plan to exit, do so well before the final expiration at the Friday market close.
This is known in the trade as the “expiration risk.”
If for some reason, your short position in your spread gets “called away,” don’t worry. Just call your broker and instruct them to exercise your long option position to cover your short option position. That gets you out of your position a few days early at your maximum profit point.
If your broker tells you to sell your remaining long and cover your short separately in the market, don’t. That makes money for your broker, but not you. Do what I say, and then fire your broker and close your account because they are giving you terrible advice. I’ve seen this happen many times among my followers.
One way or the other, I’m sure you’ll do OK, as long as I am looking over your shoulder, as I will be, always. Think of me as your trading guardian angel.
I am going to hang back and wait for good entry points before jumping back in. It’s all about keeping that “Buy low, sell high” thing going.
I’m looking to cherry-pick my new positions going into the next month-end.
Take your winnings and go out and buy yourself a well-earned dinner. Just make sure it’s take-out. I want you to stick around.
Well done, and on to the next trade.
Mad Hedge Technology Letter
December 18, 2020
Fiat Lux
Featured Trade:
(TECH IN 2021)
(ZM), (WORK), (NVDA), (AMD), (QCOM), (SQ), (PYPL), (INTU), (PANW), (OKTA), (CRWD), (SHOP), (MELI), (ETSY), (NOW), (AKAM), (TWLO)
The tech sector has been through a whirlwind in 2020, and if investors didn’t lose their shirt in March and sell at the bottom, many of them should have ended the year in the green.
My prediction at the end of 2019 that cybersecurity and health cloud companies would outperform came true.
What I didn’t get right was that almost every other tech company would double as well.
Saying that video conferencing Zoom (ZM) is the Tech Company of 2020 is not a revelation at this point, but it shows how quickly a hot software tool can come to the forefront of the tech ecosystem.
M&A was as hot as can be as many cash-heavy cloud firms try to keep pace with the Apples and Googles of the tech world like Salesforce’s purchase of workforce collaboration app Slack (WORK).
Not only has the cloud felt the huge tailwinds from the pandemic, but hardware companies like HP and Dell have been helped by the massive demand for devices since the whole world moved online in March.
What can we expect in 2021?
Although I don’t foresee many tech firms making 100% returns like in 2020, they are still the star QB on the team and are carrying the rest of the market on their back.
That won’t change and in fact, tech will need smaller companies to do more heavy lifting come 2021.
The only other sector to get through completely unscathed from the pandemic is housing, and unsurprisingly, it goes hand in hand with converted remote offices that wield the software that I talk about.
The world has essentially become silos of remote offices and we plug into the central system to do business with each other with this thing called the internet.
In 2021, this concept accelerates, and cloud companies could easily check in with 20%-30% return by 2022. The true “growth” cloud firms will see 40% returns if external factors stay favorable.
This year was the beginning of the end for many non-tech businesses and just because vaccines are rolling out across the U.S. doesn’t mean that everyone will ditch the masks and congregate in tight, indoor places.
There is nothing stopping tech from snatching more turf from the other sectors and the coast couldn’t be clearer minus the few dealing with anti-trust issues.
I can tell you with conviction that Facebook, Google, Apple, and Amazon have run out of time and meaningful regulation will rear its ugly head in 2021.
We are already seeing the EU try to ratchet up the tax coffers and lawsuits up the wazoo on Facebook are starting to mount.
Eventually, they will all be broken up which will spawn even more shareholder value.
Even Fed Chair Jerome Powell told us that he thinks stocks aren’t expensive based on how low rates have become.
That is the green light to throw new money at growth stocks unless the Fed signal otherwise.
As we head into the 5G world, I would not bet against the semiconductor trade and the likes of Nvidia (NVDA), AMD (AMD), Qualcomm (QCOM) should overperform in 2021.
Communication is the glue of society and communications-as-a-platform app Twilio (TWLO) will improve on its 2020 form along with cloud apps that make the internet more efficient and robust like Akamai (AKAM).
Workflow cloud app ServiceNow (NOW) is another one that will continue its success.
The uninterrupted shift to the cloud will not stop in 2021 and will be a strong growth driver for numerous tech companies next year.
I will not say this is a digital revolution, but as corporate executives realize they haven’t spent enough on the cloud in the lead-up to the pandemic and must now play catch-up in order to satisfy new demands in the business.
The most recent CIO survey was the thesis that cloud and digital adoption at 10% of enterprise and 15% of consumer spend entering 2020 would continue to accelerate post-pandemic and into 2021-2022.
A key dynamic playing out in the tech world over the next 12 to 18 months is the secular growth areas around cloud and cybersecurity that are seeing eye-popping demand trends.
Consumers will still be stuck at home, meaning e-commerce will still be big winners in 2021 such as Shopify (SHOP), Etsy (ETSY), and MercadoLibre (MELI).
The reliance on e-commerce will open the door for more tech companies to participate in the digital flow of transactions and the U.S. will finally catch up to the Chinese idea of paying through contactless instruments and not cards.
This highly benefits U.S. fintech companies like Square (SQ) and PayPal (PYPL). Intuit (INTU) and its accounting software is another niche player that will dominate.
Intuit most recently bought Credit Karma for $8.1 billion signaling deeper penetration into fintech.
Since we are all splurging online, we need cybersecurity to protect us and the likes of Palo Alto Networks (PANW), Okta (OKTA), and CrowdStrike Holdings, Inc. (CRWD).
The side effect of the accelerating shift to digital and cloud are troves of data that need to be stored, thus anything related to big data will also outperform.
Most of the information created (97%) has historically been stored, processed, or archived.
As new mountains of digital gold are created, we expect AI will have an increasingly critical role.
I believe that 2021 will finally see the integration of 5G technology ushering in another wave of digital migration and data generation that the world has never seen before and above are some of the tech companies that will make out well.
The average household is using 38x the amount of internet data they were using ten years ago and this is just the beginning.
Mad Hedge Technology Letter
November 13, 2020
Fiat Lux
Featured Trade:
(HOW TO STOP THE E-CRIMINALS)
(CRWD), (AVGO)
Cybersecurity is not a discretionary purchase for corporates.
This must-have product soothes the minds of every cybersecurity executive in the world.
I’ll explain how this point of strength is capitalized on by major growth security tech company CrowdStrike (CRWD).
Let me put my stamp on this indispensable service keeping cloud services afloat.
I can say with conviction that this is the beginning of a multi-year trend being driven by the industry consolidation that took place last year along with the seismic shift to cloud technologies.
Fortune 500 companies are increasingly choosing CrowdStrike as their security cloud platform.
CrowdStrike customers have never been larger and have never bought more modules and the same type of optimism appears in the stickiness of the number of new customers that surpass annual recurring revenue (ARR) of over $1 million.
Cybersecurity is mission-critical to both the public and private sectors.
Endpoint or workload security is also essential to protecting a remote workforce and as many of you know, the global remote workforce has never been bigger because of the pandemic.
While the damage to the macroeconomy from the coronavirus is gyrating at an accelerated pace, it is forcing companies to conduct business differently and rapidly shift to a remote workforce.
With CrowdStrikes’ cloud-native platform, this lightweight agent is easily deployed at scale and its frictionless go-to-market engine, CrowdStrike is uniquely positioned to meet any type of cybersecurity requirement.
The financial performance of the company is as healthy as ever as the company added a record $99 million in net new ARR and year-over-year, they increased the number of net new subscription customers by 116%, achieving 90% subscription revenue growth and 89% total revenue growth.
There were three outsized achievements this year: CrowdStrike delivered exceptional growth at scale, significantly improved margins, and achieved positive free cash flow for the fiscal year.
The seismic shift to cloud-native technologies and cloud workloads including containers has created an environment with massive greenfield opportunities.
Many competitors are dragged down by the complexities of integrating acquired technologies, rationalizing their workforce, or retooling their on-prem offerings.
Another positive tailwind is when Broadcom (AVGO) began integrating Symantec, there was a nice increase in inquiries among both customers and partners because they simply didn’t like Broadcom’s new products and vacated them to move towards CrowdStrike’s offerings.
This dynamic will contribute to an expansion in CrowdStrike’s pipeline, an acceleration in the overall customer adoption and increased engagement with partners.
Several partners in the United States and abroad have launched Symantec replacement campaigns as well but I believe CrowdStrike offers some of the most robust products.
One company submitted a list of several thousand of their customers that will be migrating away from Symantec in the next year and there was very little overlap between these prospects and CrowdStrike’s existing customer base.
The customer base has more than doubled and now protects the safety of 5,431 customers.
870 net new customers in Q4 joined CrowdStrike, which is up 136% year-over-year.
Chief Information Officers (CIOs) and Chief Information Security Officers (CISOs) are looking for a strategic partner to help them bridge this skills gap and simplify their operations, while at the same time, reducing cost.
They are also looking for ways to leverage enhanced automation in their security operations to increase efficacy and free up resources.
These organizations are increasingly rotating capital to CrowdStrike’s Falcon platform to protect an array of workloads, stop breaches, and restore system performance.
All new customers increased average number of modules in every quarter this past fiscal year.
The percentage of all subscription customers with four or more modules once again increased and those that adopted five or more cloud modules grew to one-third of their customer base.
As customers adopt more modules that span a wide array of workloads, it strengthens the customer relationship and increases CrowdStrike’s strategic position with the customer.
Companies who pay for other security alternatives keep running into the same roadblock of patchwork vendors who are largely ineffective and bureaucratic.
The burden is then directly placed on their resource-constrained IT security team eroding performance and souring team morale.
Another big problem is that a large percentage of the corporate platforms are not on the latest build of Windows, they could not update to newer versions exposing them to malware and security malfunctions.
This result is a cumbersome, manual remediation process and often requires the security team to reach out to users directly dragging out any possible IT solution.
CrowdStrike simply has this covered and can replace all three endpoint security solutions with the Falcon platform and offer seven modules providing firms with comprehensive protection and visibility in their environment and freeing up internal resources.
Existing legacy vendor failing is a common problem, and they fall victim to malicious activity shutting down production at major international facilities.
The ability to deploy the solution quickly can save the customer millions in manufacturing line productivity losses.
Beyond the immediate value provided by remediating a breach, there is significant value realized by streamlining a security stack. With the Falcon platform, firms can eliminate more than ten legacy tools and considerably improve their visibility and security posture.
CrowdStrike is collecting customers across diverse industries, geographies, and size because of proven efficacy and stopping breaches, and its cloud-native platform and lightweight single agent that is easily deployed at scale.
The predictive power of AI-driven threat graph that gets smarter the more data it consumes means the products get better with age.
The coronavirus has done nothing to dent the insatiable trend of companies searching for better security solutions.
While the coronavirus is having an impact on the global economy, it will not stop cyber adversaries. Cybersecurity provides business resiliency and meets compliance requirements.
In times of crisis, adversaries will try to exploit the situation, prey on the public's fear, and escalate new attacks.
I know it's difficult to fathom, but we've already seen nation-state adversaries from rogue regimes and e-criminals launch phishing campaigns using coronavirus marketing as clickbait entrance mechanism.
The world of global business is certainly not naïve in 2020 and tech investors shouldn’t be too.
CrowdStrike is still a small company but its growth trajectory is a sight to behold and every dip should be bought on the back of their solid business model.
Mad Hedge Technology Letter
December 13, 2019
Fiat Lux
Featured Trade:
(WHY THE FANGS ARE BREAKING INTO YOUR HOME)
(GOOGL), (AAPL), (AMZN), (ALRM), (ADT), (ARLO), (RESI), (PANW), (CRWD), (FTNT), (CSCO), (CMCSA), (BBY)
The house is the new smartphone and I will tell you why.
The projected market growth of 18% in smart home technology sales according to Acumen Researching and Consulting will deliver opportunities to shape and prioritize this sector.
The revenues up for grabs from the smart home mean that internet of things’ (IoT) companies will create systems that mesh together with the bare minimum human participation, meaning that tech will have a dramatic influence in our daily lives.
I get several moans and groans a day that the Mad Hedge Technology Letter only shines the spotlight on the FANGs.
But it is hard not to when it comes to the future of the home.
Just look at recent M&A activity.
Automation and connected smart appliances have consumed Amazon by recently acquiring Eero, producer of routers for apartments, houses, and multi-story homes, and after already paying $1 billion to acquire Ring, a doorbell-camera startup. It had also bought Blink, a smart camera maker in 2017.
Google hasn’t shied away either by investing in smart home products pocketing Nest, a firm producing smart home products, for $3.2 billion.
Nest took a few years to sort out its production phase but finally managed to launch new temperature sensors, a video doorbell, and an outdoor smart camera.
What are the trending IoT products now?
The flavors of the day are smart lights, security, entertainment systems, and temperature control.
They are the low hanging fruit of the smart home industry – a de facto gateway into this world.
Most of these smart devices operate with voice assistants, but because of the nature of competition, certain products are aligned with certain ecosystems and compatibility issues will persist until the competition flushes itself out.
A layman’s example would be Apple’s Homekit dovetailing nicely with Apple’s Siri.
Companies are in the first innings of the product iteration cycle and the variations of smart home products are endless stemming from showers that remember preferred water temperature and flow rates or climate-control systems that change in real-time to suit the user.
Security of home networks and connected devices are still a controversial question mark because the receiver of this type of data has the keys to the most intimate details of personal lives.
Even avid technologists are hesitant to dive in and put up smart home products all over the house, and most are being cautious.
In fact, privacy issues are the most distinct headwind to fresh adoption rates.
Many people simply aren’t willing to make the jump yet until they are more convinced of its use case.
Even with all the reservations, an alternative global shipment company believes smart home devices will post 24% in growth next year.
For the smart home device believers, this cohort averages 6 smart home devices per household and will certainly rise to 7 or 8 by the end of 2020.
Popular items include the Amazon Echo, Google Home, and Apple (AAPL) HomePod.
Smart speakers are already present in 36% of American homes and rising.
Consumers are also worried about technology invading their daily lives along with allowing artificial intelligence to dominate personal decision making.
Others have concluded that items such as smart microwaves are a waste of money and are unneeded when analog devices function admirably.
Another legitimate reason is that the software and technology involve a perceived steep learning curve to operate which many people do not have the patience for.
And some are just burnt out by the volume of technology thrown in our faces.
Who wants to operate 50 apps on their phone to control their smart home devices when there are other pressing needs in life?
Companies with skin in the game are Alarm.com (ALRM), ADT (ADT), Arlo Technologies (ARLO) and Resideo Technologies (REZI) and they will be outsized winners if they can solve many of the industries lingering issues.
The value thesis in the case of home automation companies is that they are financially efficient, time-effective, boost wellness and will be easy to use.
About 11% of U.S. broadband households have smart thermostats and Nest’s smart thermostat is the most popular.
Networked security cameras by Arlo are in 10% of homes.
Video doorbells from Amazon.com (AMZN), Google are in 8% of homes and help deter theft of e-commerce packages.
Smart light bulbs and lighting are at 8% market share while smart door locks are at 7% penetration.
There are several second derivates bet on this as well.
The most common user interface for the smart home is apps on a smartphone or tablet and voice commands to smart speakers are second.
The conundrum of installation complexities leads to the demand of professional installers.
This demand has delivered opportunities for companies like Comcast's (CMCSA) Xfinity and Vivint.
Electronics retailer Best Buy (BBY) has stepped up its footprint in this market as well.
Another stock play would be cybersecurity companies because they will win contracts protecting the software that smart home products rely on.
Hackers are getting more sophisticated and a private cybersecurity company Firewalla can track where data is flowing to and from your devices.
Firewalla management recommends buying devices from reputable home automation companies like Amazon and Google because they have more accountability and are of higher quality.
There will be a huge onramp of cybersecurity contracts doled out to the likes of Palo Alto Networks, Inc. (PANW), CrowdStrike Holdings, Inc. (CRWD), Fortinet, Inc. (FTNT), and Cisco Systems, Inc. (CSCO).
We are in the first mile of a marathon and smart home product manufacturers, cybersecurity companies, 5G internet, and semiconductor companies will all benefit from the broad-based integration of these next-generation home consumer products.
Mad Hedge Technology Letter
October 9, 2019
Fiat Lux
Featured Trade:
(WHAT’S BEHIND THE CHINESE TECH BLACKLIST)
(FTNT), (PANW), (CRWD), (CYBR)
The administration banning 8 Chinese tech companies screams one thing – American cybersecurity will become more important than ever before.
Interestingly enough, most of the entry list included Chinese own version of cybersecurity companies which usually participate in heavy-handed censorship including facial recognition startups Sensetime, Megvii and Yitu, video surveillance specialists Hikvision and Dahua Technology, iFlyTek, Xiamen Meiya Pico Information Co and Yixin Science and Technology Co.
All of these companies have “borrowed” American source code while applying American designed semiconductors to create a business aiding the interests and model of the Chinese Communist Party.
As the stakes become higher, American companies too will have to grow cybersecurity budgets, and instead of budgeting for mass authoritarian censorship, American companies will need to spend to protect the technology and networks they develop from getting pillaged from totalitarian regimes.
If American tech companies renege on the Faustian bargain of doing business in China for their technology, then it will force the Chinese to acquire this sensitive technology by any means possible and that doesn’t involve sitting on the emperor’s chair in Beijing.
What does this mean for the broader trade war?
Even if we get a mini deal, it won’t address that the main guts of the trade conflict entails killing off Chinese tech in the way we know it now.
Being able to agree on some sort of enforceable mechanism is a pipe dream, even if an enforceable mechanism is agreed on, who will enforce the enforceable mechanism?
That’s how tricky it is for corporates doing business in China and now the NBA (National Basketball Association) has received a small sampling of the trade war with one innocuous quote by Houston Rockets General Manager Daryl Morey who tweeted then deleted his democratic support for the Hong Kong freedom movement.
The ban of these 8 Chinese companies means they will no longer be able to purchase U.S.-made technology parts to use as inputs of a censorship business model that goes against democratic values.
The trigger for the blacklist was the way these technologies were used to imprison ethnic Muslim minorities in Chinese Xinjiang province paving the way for China to lash out again against the U.S for the ban.
Not only has China applied the technology to Chinese nationals, they have exported this technology to African states and are allowed access to the data which could theoretically be exploited for additional economic and political gain about which they essentially have no qualms.
Chinese foreign ministry spokesman Geng Shuang has characterized this move as “interfering in China’s internal affairs” and as you probably believe, he expressed great unsatisfaction with this move as Chinese and American delegations plan to meet shortly to hash out their differences.
The 8 banned companies will need to source alternative tech in the same way that Huawei Technologies has done.
Huawei was banned this past April under national security premises blocking access to US-made software for its handsets and devices, such as Google’s Android operating system and Microsoft’s Windows.
This will hurt certain semiconductor manufacturers like Nvidia who sell artificial intelligence chips for video surveillance to Hikvision and semiconductor stocks have sold off hard on this news.
Washington’s move has laid bare the fierce struggle for technology supremacy and America’s refusal to allow Chinese technology companies to reign supreme off of ill-gotten intellectual property and American semiconductor chips.
It could be the final straw in corporate America funding China to take down itself or at least another step to disengaging with the Sino cash cow.
And this new episode is almost guaranteed to usher in a flight of capital to American cybersecurity companies as Chinese hackers open up a new frontier to hack the best of America’s intellectual property.
I envision the likes of Palo Alto Networks, Inc. (PANW), Fortinet, Inc. (FTNT), CrowdStrike Holdings, Inc. (CRWD), and CyberArk Software Ltd. (CYBR) as good long term buy and holds that offer quality exposure to the cybersecurity story and the future growth of it.
