Antitrust or Bust

Hey Influence Traders,

The A train is gaining momentum.

And I don’t mean the 8th Avenue Express, either.

I’m talking about antitrust.

Everyone from Democrats and Republicans on the Hill to private citizens and competitors are setting their sights on the biggest players in Big Tech

The Biden administration has heard the rumblings and is building an antitrust team.

The A-Team

Biden wants to be the strongest antitrust enforcer since FDR (yet another area where he hopes to emulate the 32nd President.)

His nominee to the Federal Trade Commission, Columbia Law professor Lina Khan, cruised through her initial Senate committee hearing. That gathering made it clear that both sides of the aisle are open to heavy-handed antitrust enforcement.

Khan is a leader in the progressive movement known as “hipster antitrust,” which calls for new ways of reviewing companies’ market control, including how that affects people’s “roles as citizens.”

I’m still trying to figure out exactly what that means — and I have calls in to well-placed sources — but it sounds aggressive.

She will be paired with her Columbia Law colleague, Tim Wu, who was recently named to the National Economic Council and who has been vocal about attacking consumer welfarism in antitrust.

Meanwhile, Vanita Gupta, who has advocated for civil rights change in Big Tech, was just confirmed to serve in a top role at the Justice Department.

This all spells trouble for the likes of Facebook (Ticker: FB), Apple (Ticker: AAPL) and Google (Ticker: GOOGL), which have been under the microscope on Capitol Hill.

Kahn has been vocal about calling out Amazon (Ticker: AMZN) and other major tech platforms and advocating for an overhaul of competition law.

She penned a 2017 Yale Law Journal article entitled “Amazon’s Antitrust Paradox” in which she argued that even though Amazon offers consumers lower prices, the company could harm competition by squeezing out small-business rivals who rely on its marketplace.

Republicans Are on Board …

It is not just Democrats who are voicing anti-Big Tech sentiment, which is why Kahn received such a warm reception from senators considering her nomination.

Congressional Republicans have reacted poorly towards Big Tech’s censorship and have jumped on the antitrust train.

House Republican Leader Kevin McCarthy Tweeted (ironic!) that, “Facebook is more interested in acting like a Democrat super PAC than a platform for free speech and open debate.”

… So Is the Private Sector

Meanwhile, Epic Games, the maker of Fortnite, has accused Apple of breaking antitrust laws by forcing Epic to hand over a 30% cut from its sales. Epic has a similar suit against Google over the same issues for Android devices.

If Epic wins, it will upend the economics of the $100 billion app market and create a path for millions of companies and developers to avoid Apple’s fees. It would also invigorate the antitrust fight against Apple, both in the U.S. and the E.U.

We will be having a lot of internal discussions on the impact of litigation and antitrust moves on Big Tech.

Antitrust Trading

Andrew and I will certainly start to explore options trades around tech if A train news heats up — as there could be real downside money to be made.

But there is nothing wrong with owning (the right) companies that are broken up. 

Why?

Because when that happens, shareholders get shares in all of the subsequent entities.

For example, when Standard Oil was broken into 34 smaller companies in 1911, shareholders went on to make great money in new companies like Exxon, Mobil and Chevron.

Similarly, when AT&T was broken up in 1982, its market cap was $47.5 billion, but 10 years later the eight companies that came out of the breakup were worth a combined $180 billion.

In both the case of Standard Oil and AT&T, the breakups created competition that accelerated technological advancements for the industry.

When we’re talking about tech giants, don’t you think that better tech could emerge?

Would you like to own Google or 10 Googles?

Power Moves Portfolio

Andrew Giovinazzi and I made a #PowerMove in the Power Moves Portfolio.

To expand on our view that wind farms will benefit from green infrastructure spending, Andrew and I are looking to add TPI Composites (Ticker: TPIC).

As shown in the bottom chart below, TPIC options in the 120-day range are as cheap as they have been in a year.

Note the price action over the last 90 days has been very severe, with a $40 range over that period.

TOP: TPIC candlestick chart. BOTTOM: 20-day implied volatility (in green) on the bottom.

I’ll let Andrew take it from here. From yesterday:

TPIC has held around $40 for the last year and we are confident that more windmill farms are going up in the U.S. The Vineyard Wind project that was recently greenlit is just the tip of the windmill blade.

The hard part for this TPIC trade will be getting fills as the liquidity is a bit thin right now.

Our first choice is buying TPIC Aug20 50 calls for $2.25, or so. That is part A for now. The implied volatility is so cheap that we prefer to enter on that side buying options. A run to $50 or higher and we’ll close the calls. As of this writing, we are not filled on the TPIC Aug20 50 calls, but will leave a bid in for the day.

A note about liquidity, which is how easy it is to get in and out of options … TPIC is not liquid, meaning not much option volume on 260 contracts per day. The threshold for a liquid contract these days is around 5,000 daily contracts …

As such, we are doing much less than normal here, only keeping to a single contract because of the liquidity in the options. If TPIC gets more active that might change.

Cutting Through the Noise for You.

Frank

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