Trade Alert: Trimming Some Puts And A Few New Longs

Markets are down big this morning for the first time in what seems like months. Something about the jobs numbers coming in better than expected so now the Fed might have to raise again? Doesn’t matter. This market has felt pretty bubblicious for the last couple of months and the indexes have probably been due for a pullback for some time. The Nasdaq had the best first half in over 40 years and many crappy small caps with no revenue, which were hated by the market in 2021, rallied 200%, 300%, or more in the last six months. Here’s what we are up to today in the hedge fund.

• We sold some VTWO (Russell 2000 Index) July puts that were about 7% in the money.
• We also bought back some SOXX calls (July $470s) which we had sold short a few weeks back.
• Sold some QQQ July 7 $365 puts that we bought last week.
• Sold some NIO July 21 $11 puts we bought a few weeks back.
• Sold some BE July 21 $20 puts.
• Sold some COIN July 7 $81 puts.

A few buys to mention.

• We are starting a small position in Robinhood Markets (HOOD). Most of you are probably somewhat familiar with HOOD, and we thought we were too until we started digging into the company and downloaded the app to become a customer. HOOD got famous by offering commission-free online trading, zero account minimums, and fractional-share trading for retail investors. Following HOOD’s lead, all of the other online brokerages (E*Trade, TDAmeritrade, etc.) also eliminated commissions on most stock trades. HOOD has always been extremely innovative but we were shocked to learn that they are constantly rolling out new products that we had never even thought of before. For example, they just rolled out an IRA offering for individuals that do not have access to a 401(k) plan through their employer, and HOOD itself is matching contributions to IRAs up to 1%. This is an incredible product for self-employed individuals and those in the gig economy (Upworkers, Uber Drivers, Dashers, etc.) who don’t have access to retirement products. HOOD is also expanding internationally, is planning on offering futures trading, and has a non-custodial crypto wallet, and will likely be offering an AI-powered financial advisory tool to compete with traditional firms like Merrill Lynch, Edward Jones, etc. Importantly, and unlike most of its competitors in the retail FinTech world (e.g. COIN), HOOD actually follows securities regulations and is not being sued by the SEC for blatantly disregarding the law. HOOD has had its fair share of controversy (like the 2020 GME fiasco), and there is not a lot of love for this stock right now, which means it is probably a good time to buy it. With over $6bb in net cash on the balance sheet and a $9bb market cap, we think this is a good entry point for HOOD. The stock is up about 50% from its all-time lows and definitely could fall from here so we are slowly building up our position. And please let us know if any of you have used any of HOOD’s products and what your thoughts are on them. Formal write-up to come on this one.
• We are also starting a new small position in Blade Air Mobility (BLDE).  Blade is positioned to be the Uber of helicopters and already has operations in NYC, LA, Vancouver, Nice (France), Monaco, etc. In NYC for example, you can book a Blade from JFK to Manhattan and it costs you only $195/seat and gets you to your destination in about 5 minutes (compared to 1-2 hours in an Uber if traffic is bad and that might end up costing you the same or more). They also have a rapidly growing medical transport business that hauls organs to needing patients at rapid times. The stock is down about 60% from its de-SPAC price of $10 in 2021. We have already met with the CEO and team and we like what we hear, but we are still doing more homework on this one. We will be in NYC in two weeks and we plan to test out the product as customers while we are there. Once we are done with our analysis, we will send a deep-dive write-up on this stock for you all. Keep in mind that this is a speculative investment in a small-cap name and thus you do not want to rush into this position.
• Started a new position in Tower Semiconductor (TSEM). TSEM is an Israeli-based specialty fab company that focuses on analog devices. In February of last year, Intel announced that it was buying TSEM for $53/share. Prior to the announcement, TSEM stock was trading at about $33-$34/share. After initially popping to around $49 following the announcement, the stock faded and is now back to around $35. While the Intel deal is still in place, the market is betting that the acquisition won’t go through, as the deal is awaiting approval from Chinese regulators. If the Chinese approve the deal, we are looking at a potential 47% upside. Obviously, there is risk that this doesn’t go through as US/China relations (especially surrounding semis) are not good right now. But we like the risk/reward set up here as most arbitrage trades never offer this much potential upside. Again, not making this a major position, but buying some today as the stock puts in new 52-week lows.
• Misc: we are picking up some stock and a few call options on a miscellaneous basket of beat-up names that we know well including stocks that we own like GOOG (bought common), INTC (bought August $34 calls), and a little GLD common. We also put on some small starter positions in NKE and WBA as they have been demolished recently.