A Growing Business, An Expiring Trade
Penguin Solutions (PENG 0.00%↑) keeps delivering evidence that the AI buildout has legs. In its October 6th earnings release, the company reported quarterly sales of $567 million, up 68% from a year earlier. Its fiscal 2027 revenue outlook rose to a midpoint of $2.43 billion.
Our options trade on Penguin ended differently. After closing its last legs on October 7th, we finished with a $9 gross loss, or 1.4% of our original maximum risk. A business can keep growing while an options trade runs out of time. Here’s why we sold before earnings—and what a fresh review of that decision found.
Why It Made Our List
Penguin Solutions helps customers design, build and manage AI infrastructure. The opportunity extends beyond selling chips: customers need integrated computing systems, memory, software and the expertise to put them to work.
We found Penguin through our Market Watchers research and opened the trade on June 25th. It offered exposure to a less obvious part of the AI buildout, with a technical setup we liked.
The next earnings report strengthened the business case. As we wrote in July’s AI-buildout post, quarterly revenue had risen 48%, guidance had improved, and the shares jumped more than 25% the following day. That summer post explains the original thesis:
More Upside For A Fixed Risk Budget
We use options to amplify the gains from being right about a stock. We look for names capable of double-digit gains over the life of a trade, giving our options a chance at triple-digit returns. Selling other options can help finance that upside and make a more modest stock gain profitable too.
We size these trades by their maximum possible loss when opened, including any put-spread exposure. The aim is a larger profit from a successful bullish thesis while keeping the initial worst-case loss within a preset dollar-risk budget.
Buying Time, Selling Volatility
The historical entry card below shows the four-leg structure. It combined an October call with a September short call and an October put spread. Each leg had one contract.
This trade filled at a $1.40 net debit. The premium collected from the short options helped finance the longer-dated call. Our fill was below the original alert’s $1.60 limit. The put spread added downside exposure, so our original maximum risk was $640, not the $140 cash debit.
On August 20th, we bought back the short call for $0.20. That left an uncapped long call—a “runner”—alongside the put spread. The call could benefit from another rally, but its October 16th expiration put a deadline on that opportunity.
How Our Runner Review Works
An uncapped call still loses time value. Its price also responds to changes in implied volatility, the market’s pricing of potential stock moves. Around earnings, volatility can fall sharply after the announcement.
We introduced our weekly runner-monitoring process in August’s Sharpening The Saw.
Its purpose is to translate the remaining opportunity into an exit plan: review the option’s value, time left, upcoming catalysts and the economics of the entire trade.
For Penguin, the October 6th earnings report made that review especially important: it could move the stock sharply while our call had little time left.
Our Runner Review’s Exit Target
Our latest Runner Review called for selling Penguin’s remaining October 16th $80 call at $1.60. The shares had closed October 2nd at $61.36, well below the call’s strike, and the option had two weeks left.
We sold the call at that price on October 6th, before earnings, and closed the remaining put spread the next day for $0.09. After our original $1.40 debit and the $0.20 short-call buyback, the full trade finished with a $9 loss, or 1.4% of its original $640 maximum risk, before fees:
The Earnings Rally We Missed
After Penguin Solutions reported earnings, its shares jumped 13.1% on October 7th, closing at $72.61 versus $64.21 the day before. They finished 8.7% above the $66.77 entry-day close on June 25th.
Double-Checking Our Runner Review
That rally prompted us to double-check the Runner Review. We created a new AI instance and gave it only the information available at the October 2nd close: the market data, the strong summer results and the upcoming earnings report. It also knew about the existing $1.60 sell order, but we withheld the original review’s conclusion and the later outcome.
It independently kept the $1.60 sell target. The earnings report offered upside, but the call had only two weeks left, and holding through the announcement risked losing value to time decay and a volatility drop.
What One More Day Could Have Changed
Had we held the call and sold it at an indicative price of about $2.30 seen on Wednesday morning, October 7th, while keeping our other actual fills unchanged, the whole trade would have earned $61, or 9.5% on its original $640 maximum risk, before fees. The option indication was from the morning, while the stock comparison uses daily closing prices.
Buying the same $80 call alone would have been a much more expensive bet. Its recorded opening cost was $13.95. A standalone purchase at that price followed by the hypothetical $2.30 sale would have lost 83.5% of the call premium. Selling the other options financed most of our call’s cost, although the $50/$45 put spread added downside risk.
What A Fresh Penguin Trade Would Need
The latest results from Penguin Solutions keep it on our research list. A new trade would need a fresh pass through our entry screens and options pricing that offers an attractive payoff for the risk and time involved.
We’d assess the next trade on those current inputs. Strong revenue growth supports the business thesis; the entry price, structure and expiration determine how we can profit from it.
When The Amplification Worked
Ouster (OUST 0.00%↑) makes lidar sensors that help robots and autonomous systems perceive their surroundings. We selected it through our Market Watchers research and opened this historical four-leg hybrid on May 21st. The card shows the original alert’s $1.85 maximum debit:
This trade filled at a $1.45 net debit. That put its original maximum risk at $645, including the $5-wide put spread.
We exited the call diagonal for a $10.22 credit on August 17th, then closed the remaining put spread for a $0.20 debit on October 5th. Those staged exits produced the completed result below:
Over that full May 21st–October 5th period, Ouster’s closing share price rose from $35.09 to $44.12, a 25.7% gain on cash invested. Our options earned $857, or 132.9% on the original $645 maximum risk, before fees. For a $645 initial risk budget, buying $645 of shares at those closes would have produced about $166 in gains, compared with our trade’s $857.
The Stock, The Structure, And The Clock
The AI buildout continues to offer opportunities across computing and robotics. We’ll keep looking for qualifying entries and managing the options we already hold, with the business thesis and the option’s clock both in view.
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