Options brief, Oct 21, 2026

CRWV: revised from Neutral to Bearish

Thesis. CoreWeave's bonds price a much worse outcome than its stock does. Its five-year default swaps hit a record 1,194.5 bps on October 15. That implies about a 63% chance of default over five years. Its 9.625% notes due 2032 yield close to 15%. The shares bounced after Nvidia CEO Jensen Huang said CoreWeave needs no Nvidia backstop, and they trade at $63.67, near the $57.24 yearly low. The bonds did not recover with the stock. CNBC reported on October 19 that yields stayed near 15% even as AI stocks rallied.

Our previous call was neutral. We are changing it because of four new facts:

• Credit spreads are at records.
• CoreWeave's founders have sold $3.3 billion of stock.
• Its filings show $10.6 billion due by the end of 2027.
• Demand for AI compute looks softer. Anthropic's Q3 revenue grew 45% quarter over quarter after more than doubling in Q2, and investors are discussing an IPO valuation of $1.5 trillion instead of $2 trillion. Accenture now funds only $29 per employee per month for Claude, down from as much as $1,000 for some users.

For a company carrying about $50 billion of debt that it must refinance, higher borrowing costs hit equity holders first.

Why a put spread. Implied volatility is 112.75%, in the 92nd percentile of its range, so single puts are expensive. Selling the 35 put pays for part of the 60 put. It also reduces exposure to volatility, which may fall if the stock drifts lower. The March expiry covers the November 9 earnings report and the funding announcements that may follow it.

Main risk. Beta is 2.68, so CRWV moves much more than the market. A new financing deal, a large customer contract or a broad AI rally could push the stock toward $100 to $120 quickly. Comments like Huang's have already caused sharp short-covering moves. The most you can lose is the premium you pay for the spread.

VLO: Bullish

Thesis. The core catalyst is the global refining shortage. Ukrainian drone strikes on Russian refineries and disruption in the Strait of Hormuz have taken roughly 5 to 8 million barrels per day of refining capacity offline. Light-product inventories are about 150 million barrels below normal, diesel is above $6 a gallon and U.S. refineries are running near 98% of capacity. Building a new refinery takes years, so this shortage should last longer than a typical oil price spike. Releasing crude from the Strategic Petroleum Reserve or easing sanctions on Russian crude does nothing about the shortage of refining capacity.

Valero reports Q3 results before the open on October 22. The Street expects about $21 a share, compared with $12.62 in Q2. Jefferies expects a record buyback of about $4 billion this quarter, roughly 3% of Valero's $128 billion market cap. At $431.70, the stock trades at about 5 times annualized Q3 earnings. That price already assumes margins will fall sharply, which leaves room to gain if they stay high into 2027.

Why stock instead of options. VLO's IV rank is 94 and its IV percentile is 99, so options are expensive right before earnings. Beta is 0.14, so the position adds little exposure to the AI-heavy market risk elsewhere in the book.

Main risk. A lasting Middle East ceasefire or the Strait of Hormuz reopening could cut crack spreads quickly. Before the midterms, the administration may also try to limit fuel exports or margins. Positioning is crowded, so the stock could sell off after earnings even on a beat. Liquidity is rated 2 of 4, so use limit orders. Phillips 66 (October 28) and Marathon Petroleum (November 3) report soon after and will show whether refining margins are holding.