Hedging China, Betting on Tesla, and Managing Risk (Plus a Lazy Pyrenees Cameo!)

Below is the transcript from today's Live Q&A Chat. And here is the NotebookLM podcast version for easy listening (it's about 11 minutes long, and remember, AI still makes lots of mistakes).

Q. Are we still buying puts expecting a 5-7% decline?

A. We'd mentioned last week that we were buying puts when the markets were flying high but we haven't been buying many puts this week and, as noted yesterday in the chat room, we trimmed some of our puts into the big sell-off when Iran sent bombs into Israel yesterday. Easy does it. I'm not sure we're going to get that 5-7% decline and we just have to keep managing our risk profile regardless. We did buy puts on China stocks today, using CSI 300 China ETF (ASHR), iShares MSCI China ETF (MCHI), CSI China Internet ETF (KWEB), and Bilibili ADR (BILI), dated out to October and November. But again, easy does it. We sold all of our China puts a couple of weeks ago right before the China stock markets went vertical and we still own plenty of Tencent (TCEHY), which has been and continues to be a Top 5 Largest Position for us. As such, we are putting these China puts back on the hedge fund sheets just to hedge our TCEHY as much as anything else.

Q. When you start buying puts: do you have the total amount that you want to invest in puts in mind? When you add to the position, do you add in equal amounts or do you purchase twice as much as you purchased with the previous transaction?

A. Yes, we try to have an idea about how much "notional exposure" we want with our puts. For example, in order to hedge our TCEHY with China puts, we need the equivalent of about a 6% position in the puts. Here's how ChatGPT explains it: "A notional position refers to the total value or amount of the underlying asset represented by a financial derivative, such as an option. When discussing puts, a notional position describes the equivalent value of the underlying asset that the put option controls or represents. Here's how it works in the context of put options: Put Option Basics: A put option gives the holder the right (but not the obligation) to sell a specified amount of an underlying asset (like stock) at a predetermined price (strike price) before or at the option's expiration date. Notional Position in a Put Option: The notional position of a put is the total value of the underlying asset that the put option represents. It is calculated as the strike price multiplied by the number of shares (or units) in the contract. For example, if a put option gives the right to sell 100 shares of a stock at a strike price of $50, the notional value of that option would be: NotionalPosition = 100 × 50 = 5,000 USD This means the put option represents $5,000 worth of the underlying stock. Importance of Notional Value: The notional position is important because it shows the total exposure you have through the option contract. However, the actual amount of money you invest in a put option is usually much smaller than the notional value because you're only paying the option premium, not the full value of the underlying asset. The notional value helps measure the scale of your position and potential gains or losses relative to changes in the price of the underlying asset."

Q. Top 5 buys and top 5 trims? The markets took a beating yesterday but seem to be shrugging it off today and seem to shrug off most potential issues as it continues higher.

A. Top five nibbles in alphabetical order right now are: Accenture (ACN), CrowdStrike (CRWD), Intuitive Machines (LUNR), Pfizer (PFE), and Tesla (TSLA). Top 5 trims in alphabetical order are: Apple (AAPL), Amazon (AMZN), Robinhood Markets (HOOD), Netflix (NFLX), and Tencent (TCEHY).

Q. Is Tencent (TCEHY) a trim or a buy with this new Chinese stimulus?

A. Probably more of a trim than a buy but we are using China puts as hedges instead of trimming Tencent in the hedge fund. The relentless move higher in China stocks is historic, as the China stock market indices are up 40%-50%....over the last week!

Q. Are you hedging Tesla (TSLA)? What do you think are the chances that the big RoboTaxi event is a disappointment?

A. We are short a few calls against our outsized common stock position in TSLA. I think most analysts and Tesla bulls think that the Robotaxis event is set up to be a disappointment – it has been in the past. That said, I think we might finally see some tangible moves toward broad autonomy/FSD in Tesla cars and maybe even a major update on the Optimus Robot and the market isn't ready for that, IMHO. We are obviously still betting big on TSLA over all, but it might be best to just ride the common and not mess around with options or too many hedges.

Q. Would you buy Uber (UBER) back if Tesla's (TSLA) upcoming robo-taxi announcement is a disappointment?

A. I'd consider doing so. Always want to be flexible and open to change.

Q. In the long term, who will be better for Tesla (TSLA), Trump or Harris?

A. In the long run and in the short run, I don't think which Republican Democrat Regimer becomes the next president matters much at all to Tesla.

Q. Do you have a price point in mind to get back into Rocket Lab (RKLB)? Or do you have to see Neutron fully successful first?

A. Not sure there's a price point that will get me back into Rocket Lab. The biggest problem I have with Rocket Lab now is that its bull case is also its bear case. That is to say that while Rocket Lab is the only private company not named SpaceX that can get things launched into orbit, that also means that it's the main space company that will be hurt as SpaceX gets its giant Starship licensed and working to launch things into orbit in the next few months or year. The other space companies that don't do launches, like Intuitive Machines (LUNR) and/or even the aforementioned BlackSky (BKSY), get to benefit from SpaceX driving the cost of launch down another 90% or so. SpaceX is already about 80% cheaper per unit of weight for launches than Rocket Lab is. I'm still trying to understand how it all will play out but for now, I'm not buying RKLB.

Q. Did you get a chance to review Blacksky Technology (BKSY)? Is it a buy?

A. We're staying away from it for now.

Q. Thoughts on Grab Holdings (GRAB)? It's an aspiring Asia-Uberish entity (with a nice base forming on its chart).

A. Penny stock with a $15 billion market cap! Wild stuff. Nah, I'd rather own Instacart (CART), DoorDash (DASH) or Uber (UBER).

Q. SoFi Technologies (SOFI) seems to me to be like Robinhood Markets (HOOD) but with more lending options. Thoughts on SOFI or is the lending a reason not to own it?

A. SOFI has significantly diverged from its original offering—a simple online bank, which we would probably like—to doing a bunch of weird student loan lending and servicing for the government. That’s not a market we want to be in. Moreover, it’s not really a platform like HOOD is.

Q. Any updated thoughts on Joby Aviation (JOBY) with Toyota throwing it a bone?

A. Recall that Toyota has already been a big investor in Joby (this is from ChatGPT): "Toyota first invested in Joby Aviation in January 2020 as part of a $590 million Series C funding round. Toyota contributed $394 million of that total, marking a significant partnership aimed at advancing the development of Joby’s electric vertical takeoff and landing (eVTOL) aircraft. This investment highlighted Toyota’s commitment to entering the air mobility market and collaborating with Joby on both engineering and manufacturing expertise." So, Toyota's trying to keep that original investment from going to $0. I do think we'll see some EV VTOLs in the market in five to ten years, but I'm not terribly bullish on the two publicly traded eVTOL companies, Joby (JOBY) and Archer (ACHR).

Q. Current take on Pure Storage (PSTG)?

A. We like the company and have done a bunch of fundamental work on it, but we are not in it at this time.

Q. Thoughts on ARS Pharmaceuticals, Inc. (SPRY)?

A. It's a smaller cap biotech and we don't have much of an opinion on it as such. "ARS Pharmaceuticals, Inc., a biopharmaceutical company, develops treatments for severe allergic reactions. The company is developing neffy, a needle-free and low-dose intranasal epinephrine nasal spray for the emergency treatment of Type I allergic reactions, including anaphylaxis. It serves healthcare professionals, patients, and caregivers."

Q. Nio (NIO) thoughts?

A. We sat in and/or tested out several Chinese EVs while we were in Hong Kong for six days although not a Nio. I was not terribly impressed with the Chinese EVs, as most of them felt "gimicky" with heater/coolers built into the consoles, drop down HD screens for watching movies in the back and Zoom cameras for taking calls, etc. But the quality felt cheap-ish and not up to Tesla (TSLA) standards for sure. I'm staying away from China EV stocks.

I leave you with a picture of Bernice The Great Pyrenees doing her best "Guard Dog" impersonation. She's not that old, but she's gotten so lazy that she can't even be bothered to go completely outside to bark when she hears the coyotes or something to bark at. LOL. Thank you all!