The Alphabet $80b equity raise is more than a dip to buy
Management is in convex opportunity mode, time to mirror their aggression and wait for upside panic.
Even though Alphabet is my largest position by far, I have been trimming and paying taxes due to serious concentration. However, after seeing GOOGL 0.00%↑ in the 350s today, I just had to act.
TL;DR: The idea: 50bps of equity in premium: December 2028 800C. You can call it a lotto ticket, I call it underpriced right-tail skew. Yes, that’s a 10T market cap, but the position can be monetized long before.
Backstory:
I was really surprised to see this company in the mid 350s again. Perhaps some of these high quality megacaps were already being sold in anticipation of the major IPOs or to fund the AI capex rally.
Alas, there was an $80b equity offering announced yesterday. Quick facts:
$10b @ 350 by Berkshire Hathaway - note they are adding to their earlier $4.3b then $11b investments in 2025 and 2026. They are averaging UP. Greg Abel is coming out of the gate strong with a sure bet here.
$30b underwritten
$40b at the market over time ($30b earmarked for employee tax obligations)
Management must feel the same way about the leverage they will see from this additional capex to take this step. Beyond simply buying the dip, I think the real opportunity is further out.
If you look at the 2028 out-of-the-money LEAPS, their IV is about 38%. When compared to historical vol at 35% or less, you could argue that this is rich. I don’t think so.
For the 600C, it would require modest multiple expansion and hitting the consensus bull case on EPS but nothing dramatic to break even. These contracts only price a 1 in 5 chance that they hit $600+.
However, since this opportunity crosses a crucial phase in the development of this theme, there could be a lot of right tail risk up for grabs… such as:
TPUs revealed as a big competitor to NVIDIA
Search continues to re-accelerate
Google cloud continues to go parabolic
Waymo cracks self driving
Gemini 4 tops Mythos
.. and so on
There is more upside skew to this company beyond projecting current financials forward.
By going all the way up and all the way out on the chain, there’s a chance to capture the direction of the base case as well as be long vega if Google rerates to an IV of 45-50% like Nvidia/AVGO etc. Regardless of spot price, these could gain 50% on IV alone.
650C is probably the more reasonable choice, but 800C is offering the maximum capital efficiency, omega, notional, and vega exposure dollar-for-dollar. Sized accordingly, this gets me over the hump of coming back to a concentrated position.
In brief, we are waiting for a moment of upside panic. A surge in spot and an expansion in long term IV.
Appendix, more cool charts:
