Meta's core business is strong but future success depends on monetizing the Muse AI agent.

after CEO Mark Zuckerberg weighed in on the AI safety debate. In a post on Twitter act, Zuckerberg said AI labs have both a responsibility and a financial incentive to train models safely.

He argues that trust and alignment will become key competitive advantages.

Zuckerberg noted that Meta delayed its personal AI agent Muse for several months to strengthen safety and security. Meanwhile, the information is reporting that Meta could be gearing up to unveil camerafree smart glasses code name Luna at next week's connect conference.

The glasses would reportedly let users interact with Meta AI and Muse through microphones and speakers without the recording concerns with a built-in camera.

I think Meta Platforms is right in the center of everything going on with AI. Mark Zuckerberg, not surprising, taking the side of Jensen Wong and the administration not wanting to slow down AI because of everyone agrees.

His one thing that really jumped out at me was when he said he contends that market competition and liability risks would naturally compel companies to prioritize safety. I mean, he he's accurate there.

Liability would be enormous if one of your uh products did something like that.

So I think the that and the fact that we can't afford to lose to China, we can't afford to fall behind them is very significant. But I think these incredibly smart people that run these incredibly large, successful companies aren't going to put everything on the line uh by mismanaging AI.

But I mean, Meta, everything that that they're doing using their new tools, using the new Muse, I think is just adds to them. The, you know, the their viewers, their um followers are have been very resilient, not dropping off at all.

Uh Instagram has never been more popular than than it is now.

This is in a good place. And remember, it's still what $100 and so off its highs. So, people were making cases today. some analysts for a $1,000 price tag on Meta.

So yeah, you know, this is a pretty good they've made it through a pretty rough patch with capex and free cash flow. Looks like they're on the other side of it and regulation.

Obviously regulation for a company like this is always a risk out there, Diane, but Meta has a lot of good things going on doesn't mean it's risk-free.

Yeah, I think if uh you know you look at the 18% gains that we've seen so far this month, up over 4% just this week on this hype around Muse, right? Uh it's new consumerf facing AI agent.

Yeah, the the concept is good, right? They're trying to play catchup with some of the other AI agents and companies out there, whether it's OpenAI, Anthropic, Alphabet with Gemini, but are they going to be able to monetize it?

That's going to be the question I think moving forward.

Now, if you look at the core part of their business, last quarter grew 27% on a year-over-year basis as far as uh, you know, advertising revenue. That's still doing really well.

Now, they're still spending a lot on capex, but they're trying to diversify their revenue stream. We always talk about how they're so concentrated in ad revenue for most of or almost all of their profit at this point. So, they're trying to diversify that.

They're trying to come out with new chips. Uh, you mentioned the AI glasses. I don't know why you get rid of the camera. That'd be the only one of the only reasons I'd want to buy one.

Uh but there's some privacy issues uh with that.

Uh but you know, I think the company has done well. It's got 3.6 billion daily active users across their platform. So they have the eyeballs, the advertising revenue will be there.

I'm just I would just question moving forward, will Muse AI, will that AI agent be able to compete with the bigger boys in the room in this type of environment? I think that's going to be uh one of the concerns how they're able to monetize that because it sounds like they're continuing to put a lot of uh you know uh money behind that part of their business.

Anyway, I kept my trade uh in the bullish camp, my paper money trade. I went out to the September 25th, looked at the expected move about $36 and just did a $30 call vertical. Buying the 680 call, selling the 710 call.

Giving myself a little time, Tom, in terms of duration and looking for something in line with the one standard deviation move right around or just greater than 30 bucks, Tom. So, I paid 1050.

If you open up it now, it's sold off a little bit. straightening about 965 970 in that range right now, Tom. So, a little less than that, but a bullish call vertical, Tom, targeting the $710 strike.

Yeah, it's kind of reflective, Kevin, the price on what we looked at at it earlier with the stock trading around 680. It tells you how dynamic the pricing on these uh spreads can be.

let's look at your example trade here. September 25th, weekly option. So, just a week and a half, nine days. Uh, and as Kevin mentioned, the option market for that option series pricing in about a plus or minus $35 move.

Well, the top end of his vertical, the 710 strike about lines up with that one standard deviation move.

Buy the 680 strike call out of the money by about five bucks. Uh, and then sell the 710 strike call. So, a bullish $30 Y call vertical. You're paying roughly $10.5 debit. The debit you pay is going to be risk.

So you pay 9.5 950 pay 10.5 $1,50 per spread that can expand to $30 on here.

Now if you pay $1050 debit takes your break even just above $690 to the upside it's about $15 above the current share price uh in there. But if you buy it less the break even comes down also.

This is a directionally bullish trade week and a half. It gives you that flexibility as far as trade management. Say you get the move you want to 700 705 and this thing starts to expand and the market's open.

You can look at this and go, "Hey, it's expanded from $10 maybe 215 or down up to $20." Then you can make that decision. Do you want to close it? Do you want to close all or a portion of it if the market's open?

So it gives you that flexibility as far as trade management goes.

But the idea here is you get that one standard deviation move that the option market's pricing in above 710 and this goes to max profitability there. What you don't want to happen is a stock to continue to pull back from these levels and remain below that break even of just over $690 uh on this trade.

Kevin, uh I went a little bit more passive uh on my neutral to bearish trade and I used the technicals. We had the chart up there and over the past several months, probably 6 months or so, this $690 level has been an area of resistance.

So, I've kind of use that to guide my example trade here.

Uh, I went out to the October 2nd weekly option. So, just about just over two weeks until expiration. I sold the out of the money 705 call and then bought the 725 call. So, a short neutral to bearish call vertical.

Uh, you're collecting roughly about a $5 credit. It's probably trading close lower, probably trading closer to 450 now because the stock has pulled back and contracted the price of it.

But if you collect that $5 credit, your risk is $1,500 to make $500. Well, that's a lot of risk for only $500 in reward. But your break even goes all the way up to $710 to the upside.

That's about $20 above that resistance area that we've had over the last several months of about $690.

So, it's passive. You've got a higher probability of success on there. I can be wrong on direction on this and still be profitable as long as the stock remains below 710 over the next 16 days into expiration.

So, Kevin, little bit more passive on this one, but better probabilities, right? Yeah. A $20 spread that's trading $5. Just think of it like a $10 spread trading $2.5. That's actually a pretty nice riskreward for a short call vertical with a 70.5 70.6 now uh probability of finishing out of the money time. So it's high probability it's collecting theta.

And if you're if you're uncomfortable with the risk on $20, then move that spread down. Just understand the trade-off is going to be you're going to collect le less premium. But you're right, Tom.

If you look at the chart, it's failed up here a couple times. So, uh, an interesting idea on if you think it's run far enough, Tom.

Yep. Uh, there's the it's more passive and Kevin, you know, kind of stressed here. It's the higher probability of success on this at over 70% probability that that short 705 strike will be out of the money at expiration, which is what you want, and that's why your risk is a lot more than your potential reward.