Hi everyone,
as this AI rally keeps going (even if the last two days slowed down), it´s hard to find stocks that are not above the price targets by analysts or options where the greeks and IV don´t eat all the potential gains. While it´s true that there are still some occasions out there of great companies that are not selling for crazy P/Es (like meta and MSFT in the tech industry and many more in other sectors) where you could find some value (I own both stocks), I´m looking for something hotter in the AI industry. Among many companies I´ve had an eye on, Arista Networks seems to be one of the only ones that is not highly overvalued. Maybe even not fairly valued. Only up 11% YTD. Currently trading at 145 usd with analysts´ targets at 189, signaling a potential upside of about 30%. Barclays even raised their target to 195. Even if the forward P/E is a little high at 39 (almost normal for ai related companies), they crashed their last 4 earnings demonstrating solid fundamentals. I was thinking about getting some calls OTM. I feel like this ai rally is not finished yet. A contract at strike 170 with expiration on the 17th of July is 500 bucks, while for the same strike but with expiration on the 21st of august we are talking about 890 usd. Since the next earnings are on the fourth of august I´m not sure what to do. I feel like the stock is far from done, but maybe the next earnings are needed for a shift in sentiment and the option expiring in august might be worth the price? I mean IV is at 53% and IV percentile at 60%, but when talking about ai related stocks it´s pretty standard and the market here seems to be pricing in some movements, but not that much maybe. The current ATH was at 179 and we might be able to break it…Do you have any suggestions or feedbacks? Thanks!
Posted by W_BUFFETT69
3 Comments
Chasing OTM calls on ARISTA after an AI run-up is mostly timing IV and sentiment, not fundamentals. Earnings gap risk cuts both ways, upside is often already priced in.
Honestly ANET is one of the more believable AI infrastructure plays because it’s selling the networking backbone instead of pure hype. The biggest thing with those OTM calls is whether you’re specifically betting on earnings momentum or just continued sector rotation into AI names. July gives you cheaper exposure but less time for the thesis to play out. August includes earnings, but you’re paying up for that extra time and event risk. A lot of people underestimate how much IV can get crushed even after “good” earnings if the move isn’t explosive enough.
OTM calls look tempting, but earnings timing and IV crush make it tricky.