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This is not financial advice. Do your own research. Invest what you can afford to lose.
Results
We lost money on the insurance policy we sold on Intel.
$29.62 to be exact.
When we sold the policy on February 10, we collected $56.70.
To exit the deal on February 20, we had to pay $86.32.
We set aside $300 to issue this policy. We lost 10% ($29.62) of our money.
Recap
On February 10, we SOLD 1 put option for $121.35 (income) and BOUGHT 1 put option for $64.65 (protection). Upfront, we received $56.70.
$121.35 income - $64.65 protection = $56.70 net income
To exit early, we did the opposite transaction.
We had to BUY the put option we originally SOLD for $164.66 and SELL the put option we originally BOUGHT for $78.34.
$78.34 income received - $164.66 spent = -$86.32 cost to close
Taking into account the $56.70 we received upfront on February 10, and the $86.32 we paid to exit the deal on February 20, we lost $29.62.
$56.70 received upfront - $86.32 paid to exit = -$29.62
Opened (Feb 10): +$121.35 − $64.65 = +$56.70
Closed (Feb 20): +$78.34 − $164.66 = −$86.32
Net: $56.70 − $86.32 = −$29.62
Reason for Intel’s Decline
Meta + NVIDIA Partnership
On February 17, Meta announced they will buy millions of NVIDIA GPUs and CPUs for their AI data centers.
NVIDIA’s GPU systems are the best at training and deploying AI models. Combining their CPUs and GPUs will make Meta’s AI models more powerful and efficient.
This partnership impacts Intel and AMD because it threatens their CPU business.
Concerns About AI Story
Investors are also wondering when AI will pay off. The AI story has been running hot since 2022, but many companies are still not making enough money from the technology to justify the billions being invested.
Also, the insane demand for AI chips is causing a supply shortage for the chip companies. Right now, there is a shortage of memory chips, data centers, and energy capacity. Investors are worried these things will take longer than expected to materialize, and push profitability further down the road.
These concerns are weighing heavy on the semiconductor and AI industries.
Why Exit Now?
We had 28 days left on the contract. Why not wait a few more days to exit at a better price?
Simple. That was not the plan.
The plan was to exit the deal by February 20 because NVIDIA is reporting their earnings next week. Their report can cause Intel to skyrocket or collapse. A collapse could make us lose $243.30 instead of $29.62.
So that’s the choice:
A) Exit now and lose $29.62.
B) Wait longer and potentially break-even/make a profit.
C) Wait longer and lose $243.30.
(A) was the only choice that made sense to us. We can never allow greed or fear to dictate our decisions.
Even though we dislike losing money, we know the insurance business requires strict risk management and discipline. It’s better to cut early, lose a little money, and move on to the next deal.
Potential War
The dispute between America and Iran is another reason to exit the deal early.
On February 19, President Trump threatened to attack Iran if they don’t come to an agreement with the U.S. to scale back their nuclear program. Trump gave them 10-15 days to finalize a deal. U.S. military troops have already been sent to the region to prepare for a strike.
Just one more reason to exit the deal. Why expose ourselves to deeper losses.
Next week, God willing, we’ll review NVIDIA’s earnings call and discuss their impact on the semiconductor industry.
Let us continue to build our own little insurance company.
The goal is to make more than we pay out.
Stay strong, stay blessed, and God willing, we’ll see each other next week.
If you have any questions, don’t hesitate to email me at [email protected]
Remember to Pray
For the safety of every child in the world. With all the news coming out, it’s becoming more obvious that children are in great danger. They’re under constant attack spiritually, mentally, and physically. Pray earnestly for their well-being.
“Behold, children are a heritage from the Lord, the fruit of the womb a reward. Like arrows in the hand of a warrior are the children of one’s youth. Blessed is the man who fills his quiver with them! He shall not be put to shame when he speaks with his enemies in the gate.” Psalm 127:3-5 ESV
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