What if you could earn a 10% annual yield on your capital – nearly double what even the best savings accounts or CDs offer today – while positioning yourself to potentially own a great business at a steep discount? Separately, some call for businesses not to get too big. See: Break-Up Alphabet And Declare Communism?
That’s exactly what’s possible with a smart options strategy on Arista Networks (NASDAQ: ANET) – a company founded by Andy Bechtolsheim, the legendary investor who wrote the first check to Google’s founders, Larry Page and Sergey Brin.
Compare this yield with current high-yield savings rates, which rarely cross 4.5%, and often much less at large banks like JPMorgan, BofA, or Goldman Sachs. Suddenly, this strategy doesn’t just look attractive – it looks compelling. The strategy is reliable because large institutions have tested the strategy at scale, and for the right long-term investors, may serve just right. As an aside, the Trefis High Quality portfolio targets long-term value creation and has outperformed the S&P 500 and achieved returns greater than 91% since inception.
The Trade: Selling a Put Option on ANET
ANET stock is trading around $86. You can sell a long-dated Put option – expiring June 18, 2026 – with a strike price of $65, and collect $640 in premium per contract (each contract represents 100 shares).
That’s almost a 10% yield on the $6,500 you’re setting aside for the possibility of buying the stock.
And here’s the kicker → You’re agreeing to buy ANET at $65 – 25% discount to today’s price – only if the stock drops below that level by the expiration date.
This is what investors call getting paid to wait.
What Could Happen?
Two outcomes:
- ANET stays above $65 on June 18, 2026 → You keep the full $640 premium. That’s 10% income in 400 days on cash that might otherwise earn you 4% or less. You never buy the stock, and simply walk away with the cash.
- ANET ends up below $65 on June 18, 2026 → In this case, you will be obligated to buy 100 shares at $65, but thanks to the $640 premium, your effective cost basis is just $58.60 per share. Now the discount is even more = 32%.
In short, you win either way, especially if you’re comfortable owning a quality company for the long haul.
Why ANET Is a Business Worth Owning
If you do end up owning ANET stock, you’re not stuck with some speculative small-cap. You’re holding a company that:
- Solid Management: Andy Bechtolsheim – yes, the same guy who seeded Google and co-founded Sun Microsystems – is ANET’s co-founder and CTO. That’s not just pedigree, it’s proven tech leadership.
- Great Cash Flow: With a $110 Bil market cap, ANET generated $3.7 Bil in free cash flow in 2024 – a robust 3.4% cash flow yield.
- Fast Growth: ANET is expanding at 20% annually – multiple times faster than the S&P 500 median of < 5%.
The best part? With ANET’s focus on providing network equipment for data centers and cloud computing companies – this may be the right time, especially if you believe in the broader AI and data center growth story. ANET doesn’t have the same hype that is associated with Nvidia or Broadcom, but we believe may in fact be better positioned in a world where people can’t seem to have enough data. See ANET’s key metrics and financials in analysis: Buy or Sell ANET
And The Risk of a Crash Is Lower Than You Think
Selling puts is only as good as the quality of the business you’re willing to own. Luckily, with ANET, the downside risk is inherently low, thanks to exceptional fundamentals that make the company a far cry from speculative tech.
- Zero debt and massive cash reserves ($8.3 billion)
- Elite profitability with > 40% operating and net margins
- Massive 20%+ growth built in
- Despite this, PE is at 35x, which is not too expensive for a company of this caliber
- Buyback support, with nearly $800 million repurchased in Q1 2025 alone
The Bottom Line – Margin of Safety
A great asymmetric risk-reward offer with a built-in 25% margin of safety
- If stock drops below $65 – you won’t mind holding this quality name for a few years, or until it grows to $100 levels or more – if you’re an investor with a long-term mindset
- Or you simply walk away with 10% yield if the stock stays above $65.
These are the kinds of margin-of-safety setups and asymmetric risk-reward tradeoff that we seek in the Trefis HQ portfolio, which is focused on long-term value creation. With a collection of 30 stocks, it has a track record of comfortably outperforming the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.
Read the full article here
