Yuval and all,
Apparently, this is the reason for the surge of APLD this morning. Based on this news, I think APLD share price is unlikely to go back to yesterday's close later this afternoon.
Regards
James
Applied Digital shares rip 40% higher on CoreWeave AI lease agreement
By Chris Eudaily, CNBC • Published 23 mins ago • Updated 12 mins ago
- CoreWeave and Applied Digital have signed two long-term lease agreements for artificial intelligence data centers, according to a release.
- Shares of Nvidia-backed CoreWeave climbed more than 7% while Applied Digital shares rose more than 40%.
- CoreWeave will provide AI and high-performance computing infrastructure for the Applied Digital data center campus in North Dakota.
Shares of Applied Digital rose more than 40% after the company said it signed two long-term lease agreements with CoreWeave for artificial intelligence data centers.
Nvidia-backed CoreWeave climbed more than 7% following the announcement.
Financial terms of the two agreements were not provided, but Applied Digital said it expects $7 billion in total revenue over the approximately 15-year period.
"Through these newly signed long-term leases with CoreWeave, we are taking a step forward in our strategic expansion into advanced compute infrastructure," said Applied Digital CEO Wes Cummins in a release announcing the news.
CoreWeave will provide AI and high-performance computing infrastructure for the Applied Digital data center campus in Ellendale, North Dakota, according to the release.
Applied Digital will provide 250 megawatts of critical IT load for CoreWeave. The campus is designed to host 400 MW of load.
CoreWeave shares have been on a tear over the past couple weeks, setting a record high of $130.76 on May 29. The company, which rents AI servers powered by Nvidia chips, started trading at $39 on March 28.
I closed my APLD put positions a while back. My big put positions now are on ARVN, HUT, RXRX, and WOLF.
1 Like
Yuval,
Glad to know that you have closed the APLD puts already.
However, I feel that using the puts options hedge by focusing on a few names seems to be a bit volatile for hedging purposes.
Have you considered other hedging strategies that you don't mind sharing with the rest of us?
Many thanks for your reply in advance.
Regards
James
I have looked at shorting, but I prefer buying put options for a variety of reasons, most of which I've laid out here: How to Profitably Hedge with Put Options - Portfolio123 Blog. I also favor a rather diversified portfolio of put options, not just a few names: I currently hold puts on 16 different companies, most of them with a variety of expiration dates and strikes. And the volatility of the hedge is an asset rather than a liability. What I'm looking for in a hedge is something that will zoom when the market crashes. The drag comes from loss of the premiums when the market's doing fine. Remember that option returns are convex: your loss is limited to 100% but your gain can be 1,000% or more.
1 Like
Thanks Yuval. (especially the link to Put options).
I quickly skimmed through it (still reading). It is very infomative and I recommend everyone to check it out.
It is definitely a workable alternative to running a long/short portfolio. (maybe even more profitable in a market crash).
Regards
James
What's your opinion on using Russell2000 puts instead of single stock puts for a US Small/Micro strategy? The main problem of Microcap Multifactor are crashes incl. liquidity shocks like 2009/2020/2025. Quick recovery but deep drawdown. Those systems can handle "normal" bear markets like 2001-03/2022 very well but hurt in crashes. Seems optimal to use cheap OTM index put hedging for these occasions since every smallcap seems to get hit during such periods. Nonetheless, a simple outright short IWM to hedge hurts more than it helps because of imperfect correlation. So I couldn't make it work in simulations for now (MAR ratio decreases). But with Puts, it could work... How do you backtest this (historic data for option pricing)?
2 Likes
I don't see any advantage to using R2000 puts over single-stock puts if you can create a quick ranking system to choose horrible stocks. At least then you have a good chance of getting outsized returns even during normally volatile periods like the current one. Remember that put options don't really make you much money unless the stock really crashes, and the R2000 tends not to "really crash"--at least not like a stock that goes bankrupt while you're holding the option (e.g. WOLF, which I bought puts on when the stock was around $6.80).
It's not easy. I backtest for a stock strategy with extremely low/negative alpha using the RollingScreen in the DataMiner. It's very difficult to get a return curve on a put-option portfolio but with a lot of work you can arrive at very rough approximation of one.
1 Like
Well, as someone who fooled around a lot with options (but I have to admit I am not an expert), isn't the IV of stocks that would screen as typical crash candidates enormous? Or do you have a way to find stock with max crash potential rel. to IV of the puts? Or do you set yourself a max IV limit?... I don't really see the advantage of buying an illiquid 100 IV OTM Put on a singlke stock (where I need - 50% just to break even) vs. a cheap 18 IV index put where a -10% correction already gives you the same result.
Of course, if your hit rate is great and you constantly find shorting candidates with undervalued puts (low IV rel. to expected future move), that's amazing. But as you said, that's hard to model (without explicit historic option pricing data). How do you tackle this?
2 Likes
These are excellent points. I'm always looking for options where the IV is lower than my own estimation of the volatility of the stock. So, for example, look at TECX. January $22.5 puts have a mid-point IV of 78%. My estimate of the stock's volatility, based on its historical volatility and the daily difference between its high and its low deviation, is 121%. So those puts are a good candidate for me. The same can be said for a lot of other stocks on my list. If an option's IV is considerably higher than my own estimate of its volatility, I'm very unlikely to buy it.
3 Likes
Makes a lot of sense, thanks.
I don't know if it could make sense to put a part in hedge like ETF ProShares Short Russell2000 in more general term. In Europe any idea of equivalent ETF?