Generating Alpha
This Week in the Market
This week is likely to be shaped by how markets digest last week’s earnings from Meta, Amazon, and Google. Results reinforced that large-cap tech continues to deliver strong performance, with growth across advertising, cloud, and AI-related segments remaining intact. While the market remains uneasy about elevated capital expenditure, we view this concern as overstated. These companies have proven management teams and are investing aggressively to secure long-term leadership in AI, not to chase short-term returns.
As of Friday, markets appear to be stabilizing after recent weakness, with positioning less crowded and expectations more grounded. Last week’s earnings provide a solid foundation for continued upside. If momentum holds, large-cap tech is well-positioned to lead the next leg higher as confidence gradually rebuilds across the broader market.
Trade Review: AMZN
We highlighted a bullish trade plan on Amazon when the stock sold off on earnings, briefly trading below 200. The move lower was driven by capex concerns rather than any deterioration in the core business. Since then, the stock has rebounded to around 270, representing a roughly 35 percent gain in a relatively short period of time.
This reinforces our view that markets often overreact to headlines, creating opportunities when high-quality companies are mispriced. These types of setups are not rare when sentiment disconnects from fundamentals.
Betting against one of the strongest management teams in the world based on near-term spending concerns is not a high-probability trade. Amazon’s investment in AI should be viewed as a long-term advantage, not a short-term risk.
Berkshire Hathaway (BRK.B) – Debit Spread Stacking
Berkshire Hathaway (BRK.B) – Debit Spread Stacking
We also remain bullish on Berkshire Hathaway, given its unmatched balance sheet strength and disciplined capital allocation. The company holds a significant cash position, allowing it to deploy capital opportunistically during periods of market dislocation.
More importantly, for this specific trade structure, management has consistently executed share buybacks when the stock trades below intrinsic value, creating a natural floor and reinforcing downside protection.
Our approach to expressing this view is through debit spread stacking on longer-dated options. This involves adding at the money call debit spreads roughly one year out, increasing size more aggressively as price moves lower. By layering multiple strikes over time, the position benefits from both recovery in price and time, allowing several spreads to become profitable as the stock rebounds.
This structure offers leveraged upside with defined risk, making it an efficient way to capitalize on gradual mean reversion in a high-quality name like Berkshire.
Disclaimer: We own shares and options of AMZN and BRK.B as of the writing of this. The content in this newsletter is for informational and educational purposes only and should not be considered financial, investment, or legal advice. A4K Capital and its affiliates are not responsible for any financial losses or decisions made based on the information provided.
