Investors’ Super Bowl is next week when most of the AI-themed “Magnificent Seven” (Mag 7) companies deliver their highly anticipated Q4 earnings reports. These names pushed the S & P 500 to fifty-seven record all-time highs in 2024, and the benchmark index established another new all-time high this week. In the event future returns have been pulled forward for tech, I want to protect profits in the Mag 7 by hedging with the Vanguard Growth Index Fund ETF (VUG) . VUG .SPX 1Y mountain Vanguard Growth Index Fund vs. S & P 500, 1 year Over the 10-year period that ended in December 2023, the share of overall market capitalization attributed to the S & P 500’s 10 largest stocks nearly doubled from 14% to 27%. As of January 2025, the weighting of the Mag 7stocks in the S & P 500 has reached 34% of the total index. To further the move in technology stocks, President Donald Trump is wasting no time in his second term. A plethora of executive orders and several new policies were announced. The current highlight for tech investors is the announcement of the Stargate AI project, a supposed $500 billion initiative. So why hedge? My concern is the amount of CapEx (capital expenditure) that these Mag 7 companies are making and how long the return on investment will be, if ever. Mark Zuckerberg just announced that META is spending even more than estimated, $60-$65B versus the $40B expectation, this popped META to new all-time highs. The thesis currently is “spend more, make more”, we will see if that proves out at some point later in 2025. The Trade Sold VUG $440 2/21/2025 call for $2.50 Bought the VUG $415 2/21/2025 put for $3.25 This risk reversal was established for a slight debit, costing an investor $0.75 or $75 per spread. VUG was trading roughly at $426.75 when executed Both the call and the put are roughly 3% out of the money and an investor can use the premium of writing the call to finance the purchase of buying the downside put. If you have Mag 7 exposure, you are limiting upside participation by writing the VUG call. If you do not have Mag 7 exposure, an investor should consider buying a further out of the money upside VUG call to define the risk in this spread. DISCLOSURES: (Long all Mag 7 names and I have this risk reversal on.) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
