The investor Super Bowl is next week, with the most AI-themed “Magnificent Seven” (MAG 7) companies releasing highly anticipated fourth-quarter earnings reports. These names are pushing the S&P 500 to new all-time highs in 2024, with the benchmark index establishing another new all-time high this week. If future returns have been technically enhanced, I would like to protect profits in MAG 7 by hedging with the Vanguard Growth Index Fund ETF (VUG). VUG .SPX 1Y Mountain Vanguard Growth Index Fund vs. S&P 500 Index, 1-Year Over the 10-Year Period Ending December 2023, Share of Total Market Capitalization Attributable to the S&P 500’s 10 largest stocks, almost 14 shares. % to 27%. As of January 2025, the weighting of MAG 7Stocks in the S&P 500 has reached 34% of the total index. President Donald Trump is wasting no time in his second term in furthering technology stocks. A raft of enforcement orders and several new policies were announced. The current highlight for technology investors is the announcement of the Stargate AI Project, a $500 billion initiative. So why the hedge? My concern is the amount of capex (capital expenditure) these MAG 7 companies are making and the timing, if any, of return on investment. Mark Zuckerberg just announced that Meta is spending even more than estimates, $60-65B $65B compared to expectations of $40B, which takes Meta to a new all-time high. The thesis is currently “spend more, add more” and we’ll see if that proves out sometime later in 2025. This deal is on sale for $440 2/21/2025 $2.50 to Bought VUG at $2.50 $415 2/21/2025 PUT $3.25 This risk reversal was set up for a slight debit, costing the investor $0.75 or $75 per spread. When the call and put option were executed, VUG was trading at around $426.75, roughly 3% off the money, and investors could use the premium from the call to put additional votes toward the purchase. If you have MAG 7 exposure, limit rising participation by writing VUG calls. If you don’t have MAG 7 exposure, investors should consider buying more currency on the upside call to define the risk in this spread. Disclosure: (Long time All Magazine 7, I have this risk reversal.) All opinions expressed by CNBC Pro contributors are theirs solely and do not reflect the opinions of CNBC, NBC Universal, its parent companies or affiliates, and It may have been previously broadcast on television, radio, the Internet or other media. The above is subject to our Terms, Conditions and Privacy Policy. This content is for informational purposes only and does not constitute financial, investment, tax or legal advice or a recommendation to purchase any security or other financial asset. The content is general in nature and does not reflect any individual’s unique personal circumstances. The above may not apply to your particular situation. Before making any financial decisions, you should strongly consider seeking advice from your own financial or investment advisor. Click here for full disclaimer.
Hedges wise if next week’s huge 7 earnings don’t live up to lofty expectations | Real Time Headlines
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