Tuesday, November 16, 2021
Derivatives Idea - The Coming Age of Metaverse – Top Investment Plays
By Century Financial in 'Investment Insights'
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* This performance is only observed with historical backtests and not traded by the company.
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Risks & Assumptions
Rationale
The Coming Age of Metaverse - Top Investment Plays
Rationale | The metaverse is a network of virtual environments in which many people interact with each other virtually using their digital avatars. Think of this as some kind of super enhancement of the popular Hollywood movie The Matrix. Originally a concept from popular science fiction novels and movies, the word metaverse is comprised of 2 important components - MetaVerse. Meta implies transcendent i.e beyond the average human experience and verse means universe. The concept was first popularized by Sci-fi Novelist Neal Stephenson in his 1992 novel "Snow Crash". | |||||||||
3 Key Aspects of Metaverse Experience | ||||||||||
Prominent Stocks | Meta Platforms ($FB) - Facebook recently rebranded itself to the new name. After slowing down briefly in 2018, the year the Cambridge Analytica scandal erupted, Facebook has been steadily making large acquisitions — at least 21 in the last three years. Mark Zuckerberg's new move will likely propel the fate of the entire Metaverse industry. The move is seen as an attempt by Facebook to directly connect with its customers without having to rely on Apple and Google handsets. If successful, Facebook's influence will extend to entirely new types of culture & commerce. | |||||||||
Unity Softwares ($U) - The company already offers the leading platform for developing interactive 3D content. More than 70% of the top 1,000 mobile games in the world have been built using its platform. The company empowers a lot of individual and corporate content creators to build AR/VR & 3D apps. Unity's latest acquisition of Weta Digital is a very big deal for the markets. The move is likely to bolster Unity's toolset and talent for 3D content creation as it expands further in the Metaverse Universe. The company's share price has broken above its previous ATH of $175. | ||||||||||
Roblox Corporation ($RBLX) - Roblox games are often known as meme games. The company has made one live service game with the company named behind this. Despite this, Roblox market cap now tops above the most valuable US gaming company Activision Blizzard. Roblox is trying to build a virtual world that rivals most of its competitors. The company also wants to provide tools for the community independent of its content creation. | ||||||||||
Earnings & Investments Update on these stocks | Facebook has announced its plan of spending at least $10 billion this year on Facebook Reality Labs, its Metaverse division tasked with creating AR and VR hardware, software & content. Unity beat its Q3 earnings and revenue expectations and also raised its full-year guidance. Roblox reported bookings of $637.8 million, up 28% year over year, compared with an estimated $636.5 million. Revenue excluding deferred revenue came in at $509.3 million, up 102% year over year. Roblox had more than 47.3 million average daily active users in the third quarter, up 31% year over year and up from 43.2 million in the second quarter. | |||||||||
Bloomberg Analyst Recommendations | Buy | Hold | Sell | |||||||
$FB | 52 | 8 | 3 | |||||||
$U | 12 | 3 | 1 | |||||||
$RBLX | 10 | 2 | 1 | |||||||
Structure View | Bullish with downside accumulation | |||||||||
Structure Design using Risk Reversal Strategy | Lower Strike OTM Put Sell + Upside Bull Call Spread | |||||||||
Bullish View Capture - Using Risk Reversals | The 3 Structures on $FB, $U, $RBLX are designed to provide the investor with an potential opportunity to go long on the stock at a discount on the targeted downside movements along with locking in the potential upside gains. |
$FB Line Chart (Last 3 Years | Bloomberg)
$U Line Chart (Last 3 Years | Bloomberg)
$RBLX Line Chart (Last 3 Years | Bloomberg)
Performance Stats
Metaverse Stocks Structure Performance Stats
Underlying | Expiry | Structure Price Range Considered | Last Price | Exposure Size | Potential Coupon Received | Potential Breakeven price | Potential Average gains above break even | Lower Put Strike | Bull Call Spread Strike | Potential Max Profit | Potential Max Loss | Effective Buying Price in Case of Potential Assignment |
$FB | March 2022 | $150 - $600 | $340 | 1 Lot = 100 Shares | 1.91% | Above $293.5 | 5% | 88.24% | 102.94%-107.35% | $2,150.00 | $(14,350.00) | $288.75 |
$U | February 2022 | $100 - $300 | $197 | 1 Lot = 100 Shares | 2.23% | Above $150.6 | 8.31% | 78.68% | 101.52%-106.6% | $1,440.00 | $(5,060.00) | $147.50 |
$RBLX | February 2022 | $0 - $220 | $108 | 1 Lot = 100 Shares | 4.63% | Above $85 | 9.26% | 83.30% | 101.85%-106.48% | $1,000.00 | $1,000.00 | $83.50 |
Data & Prices as of: 12/11/2021 - US Markets Close | Bloomberg
Payoffs
$FB 4-Month Strategy Payoff Profile (Source: Excel Calculations)
$U 3-Month Strategy Payoff Profile (Source: Excel Calculations)
$RBLX 3-Month Strategy Payoff Profile (Source: Excel Calculations)
Risks and Assumptions for Back-tested trading strategies
Data Source: Bloomberg
Data as of: 12/11/2021
Arun Leslie John
Chief Market Analyst
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