Yo Pit Crazies,
If the war with Iran is back on, why is the top listed drone maker sitting near its low for the year?
That question has been nagging at me.
Over the weekend the U.S. hit three Iranian oil tankers, one of them right off Kharg Island, after Iran fired missiles at two Navy warships.
Kharg is where most of Iran's crude leaves the country, so that's a real escalation.
It’s also an escalation in the right direction.
Iran is on the way down, and we're helping that along.
Not long ago, Iran was "winning" the war in the media. Meanwhile, the Navy kept doing its job and the negotiations kept going. Even today, with a tanker on the bottom of the Gulf of Oman, Tehran says it's close to a deal with Oman to manage traffic through the Strait of Hormuz.
Countries planning a long fight don't talk like that.
Most people gauge that sentiment with news and words. I like to use the price of things to tell me how people are feeling.
The VIX (the market's fear gauge, built from what traders pay for S&P 500 options) is my go-to because it reads the mood fast. Right now, as I look below, the S&P 500 Trust ETF (SPY) can only muster a half percent drop on the day.
As the day wore into the close, the SPY put skew (how much more traders pay for downside protection than for upside bets) just started to pick up.
The orange line above is implied volatility per strike in SPY (what the options market expects the stock to move, priced strike by strike). It gained a bit into the overnight session. That usually picks up a bid when there's "unfinished" business in the news.
Finally, shares of my favorite drone maker, courtesy of Frank Gregory, are up about $4 today on news the hot war is back on.
AeroVironment (AVAV) is still in the dustbin for the year:
It topped out near $418 last October, bottomed at $135 in June, and trades in the mid-$140s heading into earnings Wednesday after the close. I bought more shares.
Think about what that price is telling you: This is the company that builds the Switchblade drones the Army has been ordering all year, and it landed a $464 million counter-drone laser contract this summer. If the premier listed drone maker can't hold a bid with missiles flying at our carriers, then the people trading it aren't betting on a long war.
I'm not either.
This selloff in SPY is a short-term buying opportunity, and AVAV is a longer one with exposure to AI and drones.
I hope you enjoyed the long Labor Day weekend.
Hope this was helpful,
Andrew Giovinazzi