Trade Alert: The Optimal Networking Pullback
Taking advantage of yesterday's drop in the space with a bullish options bet on a name that appeared in our top ten last night.
Thursday’s Optimal Networking Markdown
On Thursday, optical networking and related photonics names got hit hard after the close—not because of some broad demand collapse, but because AXT (AXTI) cut its Q4 revenue guidance.
If you just look at AXTI’s headline numbers, the reaction makes sense: they lowered Q4 2025 revenue expectations from a high-20s million range to about $22.5–23.5 million. But when you dig into why they did that, it’s a lot less scary for the broader theme:
The shortfall is mainly due to delays in Chinese export permits for indium phosphide (InP) substrates.
Management expects that revenue to shift into Q1 2026, not disappear.
The real story is timing risk from export controls, not a broken demand picture.
In other words, the guidance cut is very AXTI-specific, but the cause—China export bureaucracy around a critical photonics input—spooked the whole space. Traders did what they always do: see a headline about export delays and haircut anything nearby in the optical / photonics complex, whether or not those companies have said a word about their own orders.
We already had a position in AXTI from a trade we opened last month,
and even after Thursday’s after-hours drop, the stock is still well above where we entered. The thesis there was that AXTI sits on a bottleneck (InP substrates) for a key part of the AI / photonics build-out; that bottleneck hasn’t gone away just because some Q4 revenue slid into Q1.
Taking Advantage Of The Pullback
What has changed is sentiment. A sector-wide markdown off one company’s export-permit headache is exactly the kind of overreaction I like to lean into—especially when Portfolio Armor’s top names are pointing in the same direction.
As a reminder, our Top Names list is generated purely from Portfolio Armor’s quantitative ranking of securities by estimated 6-month return. Since late 2022, our top names have significantly outperformed the market while often surfacing names before their big catalysts hit. I wrote about that pattern—how our top names tend to front-run news flow by 1–3 months—in more detail in my “Pouring Fuel On The Fire” post yesterday.
On Thursday night, one optical networking stock in that beaten-up group appeared in our Top Names again. Today, I’m using the AXTI-driven flush to open a new options position in it:
It’s in the same broader ecosystem that just got repriced lower on AXTI’s export-delay news.
And the structure we’re using gives us uncapped upside while buying options for less than their Black-Scholes fair value.
Full details on the trade, including our pre-set exit triggers, as usual, so we don’t have to babysit it, are below.
Today’s Top Names Trade
Optical networking / AI infrastructure theme
