Samsara (IOT): Drifting Back While the Fox Runs Loose
Samsara after the SaaS panic, why a napping VIX hides leveraged plumbing, and how defined-risk options fit a stock drifting toward fair value.
The Fox in the Options Pit
The index volatility gauge is dozing, and I treat that as a warning. Underneath, leverage is doing its exercises: total return swaps, geared ETFs, dealers hedging their books, the zero-day crowd, and a tech options market priced as if something feral had been let loose in the pit. The index looks tranquil because the excitement has migrated into single names, where it is anything but.
Semiconductors sprinted for a week as if they ran the only shovel shop in the gold rush. Cash-rich software keeps compounding earnings while the algos short it against an AI apocalypse that never clocks in. Gold, the old crisis blanket, now trades like a teenager with a margin account, down on a war headline and up on a peace one. When the safe haven catches the mood swings, nothing is quietly diversifying anything.
The Patient Get Paid Again
A milestone slipped past most desks. The earnings yield on the S&P has dropped below the yield on the Treasury note, so a risk-free government bond now pays more than the whole stock index earns in profit. Every allocator now holds a paid, patient reason to lighten stocks and wait, and reasons like that get acted on slowly and then all at once.
Stack the rest on top. The Strait remains closed until Friday for mine clearance, a single tanker has dared the passage toward India, war-risk premiums sit near decade highs, and the American petroleum reserve is at its thinnest in decades. SpaceX priced itself past Microsoft after hours on retail buying, options opening next session. A stitched-together set of cheaper AI models matched the flagships at half the price, which feeds compute demand while draining the pricing power behind trillion-dollar valuations.
Half a Stock, Whole Business
Samsara is where the letter puts the idea. The stock lost half its value on the SaaS-disruption panic, the notion that AI would eat every software vendor alive. The company declined to cooperate. The latest quarter beat on revenue, recurring revenue is closing in on two billion dollars at a growth clip mature software would envy, and management lifted full-year guidance. Analysts sit well above the share price. The fear got priced; the business kept growing.
For an options trader the key detail is what the calendar lacks. Earnings are cleared until September, so the next scheduled reason for a gap sits months away. That argues for a drift back toward fair value, and drift wants a structure that pays for patience inside a defined range while capping what can go wrong. A long call butterfly does that with a capped loss and a payoff that widens as the stock settles near the middle of the wings. It also suits the regime the letter describes, premium rich in tech, because the fly sells more optionality than it buys. The name is thinly traded, and tight limits at entry are the gap between the price on paper and the price you get.
Everything Funnels Into Wednesday
The calendar is dense with a single gravitational centre: Warsh chairs his first Fed meeting on Wednesday. Before that, May retail sales will show whether the consumer is cracking, then housing starts and industrial production for growth. Overseas, the Bank of Japan is all but certain to hike while the RBA and the Bank of England hold. Friday brings Juneteenth, a closed US market and thin liquidity into a long weekend, on the same day the Strait is meant to reopen. Thin books and war headlines are a poor mix for anyone short gamma.
The letter's tactics for this tape amount to restraint dressed as strategy: no chasing of green candles, defined-risk structures, collars, calendars tilted slightly bearish, premium sold only where the move has already gone emotional, sizing kept boring and exits mapped before the headline lands. Samsara is a small, specific expression of that stance, a halved stock with a whole business underneath, held through a defined structure while the rest of the room argues about the fox.
This page is the write-up. The full letter, with the trade and its exit rule, is on Substack.
Get the next Tuesday Target free
One options trade. Every Tuesday. Scored in public. The exit rule is on the card, and the letter is free to read.