Another Top Name With Room To Grow
In our previous post (“The Final Investment Frontier“), we mentioned two Portfolio Armor top names that spiked on Friday. Those stocks were Rocket Lab USA, Inc. RKLB and Intuitive Machines, Inc. LUNR.
One point we highlighted there was both stocks being midcaps. That suggested more growth potential relative the trillion-dollar+ market cap stocks leading AI, such as Nvidia (NVDA). There are, however, some attractive midcap stocks positioned to benefit from the AI trend though. One of those is Oklo (OKLO).
The Nuclear Option In AI
Like RKLB and LUNR on Friday, OKLO has spiked double digits today (Monday).
Also like RKLB and LUNR, OKLO was a Portfolio Armor top name last month. As with those two space names, we also placed a bullish trade on it last month (“Trade Alert: Top Names + Nuclear + AI“).
As we wrote there at the time:
AI datacenters are going to have enormous power demands, and that is likely to lead to a renaissance in nuclear energy production. Our #1 name as of Thursday’s close is a company producing a newer kind of nuclear reactor, one that seems to be preferred by Silicon Valley types.
Today’s trade is a bet on this company’s shares being about 30% higher in six months, which is within the options market’s expected move for the stock. If we’re right, we could make up to 400%; if we’re wrong, we could lose up to 100%.
Like the two space names, we used a vertical call spread to bet on OKLO. We did that because calls on the stocks were very expensive. The call spread allows us to mostly offset the cost of a long call with proceeds from selling a short call.
Our trade was a vertical spread expiring on June 20th, buying the $30 strike calls and selling the $31 strike calls, for a net debit of $0.20.
The maximum gain of 400% on this trade would occur with OKLO trading above $31 on June 20th. It traded as high as $31.65 on Monday afternoon.
Should We Have Been More Aggressive?
As with the space stock trades, the OKLO has climbed higher faster than we expected. In setting our targets for these trades, we compared Portfolio Armor’s potential returns with the options market’s expected returns. Then we picked a price target slightly below the lower figure. Using shorter-dated options or higher strike prices would have increased our maximum potential gains. But it also would have reduced the odds of the trades succeeding. That’s the tradeoff here.
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And if you already own OKLO and want to lock in some gains, you can download our optimal hedging app. Just aim your iPhone camera at the QR code below. You can also download it by tapping here, if you’re reading this on your phone.
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