Top Trade Alert – Sept 14 2023 – CSCO and AKAM

    CSCO Sept 14 2023

    Over half of crypto tokens stolen in $610 mln hack now returned, Poly ...MGM got hacked! 

    Caesar’s (CZR) got hacked last month and reported paid tens of Millions of Dollars to “Scattered Spider” and/or “UNC 3944” – US and UK hacker groups, who have previously targeted telecommunications and business process outsourcing companies, according to Bloomberg. The hackers started targeting Caesars as early as Aug. 27, according to the people. The group had also demanded a ransom from MGM, while the casino operator’s systems stayed paralyzed FOR A THIRD DAY! Scattered Spider may have worked with ALPHV on the MGM hack, the report said, citing sources. 

    I know you are thinking “Phil – why are you throwing all these new names at me?” Well, think of them as very successful startups in the hot new sector called Corporate Hacking. The MGM cyber attack occurred on September 11, 2023, when the company detected a “cybersecurity issue” that affected some of its systems. The company shut down certain systems to protect its data and began an investigation with external cybersecurity experts.

    MGM Resorts Hackers Reportedly Demanding Large RansomThe cyber attack disrupted the operations of MGM’s properties across the U.S., including its Website, Corporate Email, Restaurant Reservation, Hotel Booking, and Digital Room Key Systems. Some guests reported that they were unable to charge purchases to their rooms or use their credit cards at the casinos.

    The hackers stole a large amount of data from Caesars, including Customer and Employee Information, Financial Records, and Internal Documents. They also encrypted some of Caesars’ systems with ransomware, locking them out of their own data. They demanded a ransom from Caesars in exchange for the decryption key and the deletion of the stolen data.

    CZR seems to have paid to stop the leak and MGM is rumored to be doing the same but that’s YOUR data they have hacked if you’ve visited those properties or played poker on-line or engaged in sports betting – all that very personal financial data you share with them so you can play games is now in play on the dark web!  

    CZR paid quickly and quietly and the public didn’t know they’d been hacked – MGM resisted and it’s turned into a disaster.  David Kennedy, CEO of TrustedSec, a cybersecurity firm, expressed his lack of surprise at the MGM hack, citing the inadequate Cybersecurity budgets that plague many casinos. The use of “flat” IT infrastructure in these establishments makes them susceptible to hackers infiltrating accounting systems and accessing customer credit card records.

    IdoruJust like any thriving market sector – if Hackers are rewarded for this behavior (and the risk is being arrested but all companies have risks) then the sector grows and more people are attracted to it and they find investors and they can invest in tools like AI and Quantum Computing to make themselves more efficient and more profitable, etc. etc. etc. 

    We can’t invest in Hackers (legally) but we can invest in HACK, the Cyber-Security ETF and that sector is going to be booming for the rest of this decade. Read “Idoru” by William Gibson to get an idea of where things are heading for us…

    Anyway, HACK is a shotgun ETF, with roughly 5% each of companies like SPLK, ZS, AKAM, LDOS, BAH, PANW, OCTA, BAE and CHKP but there’s also CSCO, who I like for many reasons.  

    CSCO boasts a diverse and comprehensive Cybersecurity Portfolio. Their offerings span network security, cloud security, and endpoint security, providing a holistic approach to safeguarding digital assets. In a world where cyber threats can emerge from any corner of the internet, this breadth of protection is invaluable.

    CSCO was a Top Trade Alert for our PSW Members back on March 8th and that trade idea was:  

      • Sell 10 CSCO 2025 $50 puts for $5.90 ($5,900)
      • Buy 20 CSCO 2025 $45 calls for $9.30 ($18,600)
      • Sell 20 CSCO 2025 $60 calls for $2.85 ($5,700)

    That’s net $7,000 on the $30,000 spread with $23,000 (328%) upside potential and, of course, we’d love for them to drop 20% so we can DD but I doubt that will happen so we’ll probably have to be content with the $23,000 gain.

    Now the $50 puts are $2.90 ($2,900) and the $45 calls are $14.25 ($28,500) and the $60 calls are $4.85 ($9,700) so that’s net $15,900 and that’s up $8,900 (127%) in six months and almost another 100% left to gain over the next year (but we can do better!) – congratulations to all who played our Top Trade! 

    What sets Cisco apart is its rich history in networking. As a networking giant, they understand the very fabric of digital communication. This expertise is a game-changer in the cybersecurity realm. Cisco leverages its deep knowledge of networks to build security solutions that seamlessly integrate with your infrastructure. It’s not just about building walls; it’s about building smart, adaptable security that works in harmony with your network.

    Imagine a threat being detected on an endpoint device and swiftly neutralized, with the intelligence shared instantly across the network, the cloud, and every corner of your digital ecosystem. This is the power of Cisco’s security integration, where every piece of your digital puzzle contributes to your overall safety.

    Cisco has made strategic acquisitions in key areas of Cybersecurity, embracing technologies like Zero Trust Security, Artificial Intelligence, and Machine Learning. CSCO seems to understand the shift towards cybersecurity as a service, offering scalable, cost-effective solutions that empower businesses without heavy upfront investments. In a world where agility and flexibility are paramount, this approach resonates with businesses seeking adaptable cybersecurity solutions.

    With all that going for it, CSCO is only a mid-tech at $56.28, which is $228Bn in market cap and they are making $16.5Bn (13.8x) and didn’t miss a beat during Covid either. The company is debt-free with almost $10Bn in CASH!!! and, best of all, people don’t tend to blame the “hardware” guys when they get hacked.  So, for the LTP, let’s:  

      • Sell 10 CSCO 2026 $50 puts for $4.10 ($4,100)
      • Buy 25 CSCO 2026 $55 calls for $9.50 ($23,750) 
      • Sell 20 CSCO 2025 $70 calls for $3.85 ($7,700)
      • Sell 10 CSCO Jan $55 calls for $3.50 ($3,500) 

    That’s net $8,450 on the $37,500 spread so we have $29,050 (343%) upside potential if CSCO gains 25% to $70 over the next two years. We sold $3,500 using one of the 9 quarters we have to sell and 8 more sales like that can drop another $28,000 in our pockets while we wait.  The risk is owning 1,000 shares of CSCO at $50 plus whatever we lose on the spread – net $58.45 would be the worst and that’s not so bad, is it?  

    CSCO’s large market cap and low p/e are what makes HACK look reasonable at 30x and AKAM is the other jewel in HACK’s crown, trading at just 17.7x their $920M earnings at $16Bn ($105). AKAM also did not miss a step during Covid and I think they are beginning to find their groove, with Earnings now growing twice as fast as Revenues. 

    AKAM is a company that provides Cloud Services for delivering, optimizing and securing online content and business applications. One of their main offerings is Cybersecurity Solutions that protects Websites, Web Applications, APIs, and Users from various threats, such as DDoS Attacks, Web Application Attacks, Botnets, Malware, Phishing, and Credential Stuffing.

    ACAM was one of many short puts we took advantage of selling back on March 22nd in our Live Member Chat Room.  

    Now for our LTP, let’s:

      • Sell 10 AKAM 2026 $95 puts for $9 ($9,000) 
      • Buy 20 AKAM 2026 $90 calls at $32 ($62,000) 
      • Sell 20 AKAM 2025 $110 calls at $20.50 ($41,000) 
      • Sell 5 AKAM Jan $105 calls at $7 ($3,500) 

    Again we are spending net $8,500 but this time it’s on a $40,000 spread that’s $28,000 in the money to start!  The upside potential at $110 is $31,500 (370%) and we have 8 more quarters to sell $3,500 in premium for a potential bonus of $28,000 while we wait – I’m feeling more secure already!  

    There is a great lesson on identifying an opportunity and finding the right plays to take advantage of an emerging market cycle. We’re not going after the “obvious” cyber-security plays that are already 30x but the peripheral companies that will also benefit. In fact, that’s the same logic by which we bought CSCO in March as an AI play – 2 big reasons to love them!