Nearing midday in Friday trading, all of the major indexes are down slightly on the day. Chip stocks are weighing on the broader markets. Nvidia (NVDA)is off close to 2% while Broadcom’s (AVGO)given back more than 2% of its recent gains.
The good news is that the US S&P PMI report showed that the economy continues to expand, which should translate into higher corporate profits. The bad news if you’re looking to buy a house is that interest rates might not get cut soon.
Whatever the case, Friday means I’m writing about unusual options activity from Thursday’s trading.
Two companies with similar stock symbols -- Wolfspeed (WOLF)and Terawulf (WULF)\-- had six unusually active options yesterday with Vol/OI ratios ranging from 7.24 to 21.83.
Before I get into my best bet of the six, I’ll decide which is the better company and long-term investment. Then, I’ll finish with the best bet among the six unusually active options listed above.
Have an excellent weekend!
Wolfspeed Is the Bigger Company
When it comes to market cap, Wolfspeed is the bigger company at $2.99 billion, almost double Terawulf. In terms of revenues, the former is larger, with quarterly revenue of $201 million, nearly 5x larger than the latter.
Where they both struggle is in making money.
In Q3 2024 (June year-end), Wolfspeed had a non-GAAP operating loss of $79.0 million, 19% lower than a year earlier. For the first nine months of 2024, its operating loss was $222.1 million, 39% higher than a year earlier.
In Q1 2024 (March year-end), Terawulf’s non-GAAP adjusted EBITDA was $32.0 million, up 1,461% from a $2.3 million loss a year earlier.
On an apples to apples comparison, Wolfspeed’s adjusted EBITDA loss in Q3 2024 was $32.3 million, up slightly from a $30.5 million loss in Q3 2023.
So, from a perspective of profitability -- Wolfspeed was 75.4% vs. -16.1% -- there is no question that Terawulf has the better EBITDA margin. However, there are reasons for both.
I’ll get into this below.
Which Is the Better Company?
Wolfspeed makes silicon carbide (SiC) chips. SiC is used for electrification applications like EVs and EV charging stations.
“Silicon Carbide devices deliver high-voltage, high-current, and high-temperature components and help create more energy efficient systems like for an electric car that you want to get the most range out of,” Lauren Kegley, Product Manager, Wolfspeed, tod Auto Futures in 2023.
Given EV sales have slowed, Wolfspeed’s growth rate has slowed. Its revenues in Q3 2024 were $200.7 million, 4.2% higher than Q3 2023. Through the first nine months of 2024, they increased 9.1%. In fiscal 2023, sales increased by 23.5%, to $922 million.
Due to the slowdown, there’s a good chance Wolfspeed might not make it to $1 billion in 2024 revenue. At the high end of its Q4 2024 outlook, it expects $215 million in revenue, which brings its full-year amount to $822 million, considerably short.
As for Terawulf, it is a bitcoin miner with facilities in upstate New York. It also jointly owns the Nautilus cryptomine facility in central Pennsylvania. Together, they have a total operational capacity of 210 MW (megawatts). It is constructing another 35 MW of capacity at its upstate New York facilities. It’s expected to open any day now.
In May, it mined 186 bitcoin at a rate of six per day.
“The Lake Mariner team is making remarkable progress on Building 4, which is scheduled to complete construction in June and will house approximately 10,000 of Bitmain’s latest generations of S21 and S21 Pro miners,” stated Sean Farrell, SVP of Operations at TeraWulf, in its May operations update.
“Once online, Building 4 is expected to increase our total operating capacity to above 10.0 EH/s. Looking ahead, we have already optimized a 50 MW modular building with local key contractors for Building 5, which is currently anticipated to be online in Q1 2025.”
Due to the higher Bitcoin price today compared to a year ago, its revenue rose 82.2% in Q1 2024 to $42.4 million. With greater capacity to produce bitcoin, it should continue to generate positive adjusted EBITDA in the quarters ahead.
According to Barchart.com analyst ratings, 17 cover WOLF, with six rating it a Buy (3.65 out of 5). WULF has six covering its stock, with all six rating it a Buy (4.83 out of 5).
From where I sit, while Wolfspeed’s SiC product is important to the development of the EV market, Terawulf seems to have a business that’s easier to scale on a profitable basis.
So, I’d say WULF is the better of the two businesses.
The Options in Question
As I said in the introduction, there were six options yesterday, four for WOLF and two for WULF. Of the six, three were puts, and three were calls.
The most interesting of the four WOLF options is the July 19 $20 put. It presents a possible income play. Based on the bid price of $0.55 and yesterday’s closing price of $23.76, the premium provides an annualized return of 30%. Given its stock hasn’t traded below $20.63 over the past year, it’s unlikely you’d have to buy the shares at $19.45.
As for Terawulf, it has a put and a call. They both have an appeal.
The Aug. 16 $9 call expires in 56 days. Based on a closing price of $4.63 and a closing ask price of $0.25, it’s a down payment of 5.4%. The downside is minimal. You can double your money selling the call before expiration if it appreciates by $1.28 (28%). Up nearly 89% year to date, it’s more than possible.
The June 28 $4.50 put has a bid price of $0.25. As of yesterday, it was out of the money. If you were to sell puts, the annualized yield is 297%. While there is downside risk here, the near-term technical indicators suggest it’s a Strong Buy. I like the income play here.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.