network. Earnings aren't over yet. We've got Adobe coming out tonight. Should be a fun report. Stock's been hanging in pretty well. Joining us James Demmer is a founder and chief investment officer at Main Street Research. And Tom right here with me in studio we're going to look at the options. Do some trading. Good morning James Adobe this afternoon. Kind of a fun name as it does overlap with a lot of AI themes, but it's also kind of singular in its own right. It is Oliver, good to see you. And yeah, it's going to be an interesting report. I think one of the things that all investors have been sort of waiting for, for quarters is to see the fruits of all this CapEx spending on AI come through in earnings and profitability, and we have great expectations for these numbers. We expect. 454 a share. 5.4 billion. A lot of it coming from digital cloud. The document cloud Creative Cloud. We think they're going to be on top and bottom. And this could be a great hallmark like it was for Oracle this week right. They beat on top and bottom showing that AI CapEx really coming out on the other end in profitability. This could be a theme that investors want to pay attention to. If Adobe can do this for the next, let's say, 18 months, these generative AI expectations. I like that one of the areas that we do have real product, you know, because we're waiting on the iPhone, we want to see that we've got Microsoft Copilot, but Adobe one that should really be in that conversation is already kind of a live example of product and sales that are happening because of very specific new applications on the software. Yeah, that's for sure. And I think you know, when we look at their subscriber numbers, which are another important element of this report, our expectations are going to be higher than expected for that very reason. So a lot is depending on this, I think investors will be very disappointed if they don't see this CapEx really coming out the other end. But our feeling is that it will just like Oracle shares demonstrated earlier in the week. Again, I think this is just that first phase that investors are going to start to see what I would call even a new bull market in the second derivative, AI companies. There you go. I was just thinking that because the cloud stocks have been so soft all year, it wouldn't be bad timing for them to kind of lead. Maybe that second wave, the next kind of step of the AI process. Right. The applications on the software side because Oracle broke out. To your point, I mean, that was a big report. And, you know, Adobe's pretty close to, you know, highs from the summer, maybe not the 638 we were at earlier this year. But do you think these are stocks that can hang out near highs? James, even if the market chops around? Yeah, I think I think that this is definitely a stock pickers market as we've seen from earnings like Kroger this morning. You've really got to be careful what you own. We think that you know not only Adobe can break to new highs but we'd actually expect the whole market. You know one of the things that Oliver that I look at is that corrections come with with price and time. This market indexes are really right where they were in mid June. So we've taken some time off here. And I think with the fed ready to pause to lower rates, we're going to see stocks lift to new highs across the board. And probably a little bit more broadening if you will, than we've seen earlier. And I think Adobe is going to be part of that. So to your point then about the stock picking, because the last time we had the big thrust in the first quarter, the rally through the high, the Nvidia driven stuff that was the ETF market baby, you didn't have to think at all because that one stock and a few others driving so much of it. So you think this time around that type of leadership gets broken up. We do. We think the next 18 months is different than the last 18 months. And yes, the Nvidia's and the picks and shovels of AI will continue to do well. But in the next 18 months, we think the rest of the market does it competes with it. So the trajectory of the picks and shovels, semis, it can't continue as it has. They're still going to be great investments. We still own them. But here is where you really want to own lower P stocks in more diversified areas of the market, much of which has also had a lot of CapEx spending in AI like health care, industrial, financials, good examples like that. James, thanks for the catch up. Appreciate it. Glad we got you on. Good thought out of Adobe this afternoon James Dimon Main Street Research. All right Tom white here in studio bullish on Adobe could break out. So let's go with that. James likes it. We're 576 right now. What are the options look like going into the report. Optimism abounds here right I love it. James. Yeah So you got to look at the what the market's pricing in plus or -$40. Move in the shares is a $580 stock right. So all right so and look at the last two last two earnings. We dumped two two quarters ago. And then we rallied snapped back rallied. And what's the stock down 3% on the year. So it's a consolidated at these levels below that multi year high at 638 that you mentioned earlier this year. So I looked at a strategy that takes advantage of implied volatility dispersion. What do I mean by that. Well I'm looking at a call diagonal that's bullish okay. Really short term positioning. If you think this thing's going to pop post earnings maybe have an Oracle type move. This type of strategy takes advantage of it. And you're taking advantage of the high implied volatility in the near term option. So going out to the September 20th option series buying the 580 strike call that's at the money and that's only eight days away. And then against that in the near term September 13th, weekly options I'm going to sell the 610 strike call. So a $30 wide bullish call diagonal. And I'm only paying about a $15 debit for this. So half the price of what the width of this call diagonal is, it's really short term positioning. If you think it's going to pop post earnings. This is the type of strategy that takes advantage of it. If I pay that $15 debit, there's my risk $1,500 per spread. You see that break even probably just around 580, maybe a little bit higher. But the reason that it cost half the width of the call diagonal is because you're buying less than a 70% implied volatility in the September 20th. Options on that 580 strike selling about 150% implied volatility in the near term. Those are the juicy ones, the juicy ones. So that six, ten, ten, that 610 strike call that you're selling with one day to expiration, that's got $9 of extra extrinsic value or option premium. That's a fun trade. I like that I can see that because that would be pretty big. That would be, you know, but the thing is, we're right at the high from July. So if it cracks that, you know, I might be able to run. I think the bar is actually low going into Adobe's earnings because of the fact that, hey, it's still down a couple percent so far this year. That's a good point. Yeah. Still a loser on the year because it was down a ton. Yeah. Forgot. And remember it was sales two quarters ago. That hurt them. And then the bar was low going into the last report and we popped on that. That's right. But if you take a look at it prior to that, that earnings two quarters ago, we're right at the same level. Sure. You could argue that. Yeah. You're still kind of in a longer term downtrend sideways at best. You know, over the past 52 weeks if you stretch it out basically sideways. Yeah So it's not going to rip here. But also just the pricing evolves pretty pumped up. So it is because they're expecting a move. You know this thing's probably not going to consolidate near 580 after earnings tomorrow. Right And you've still got the Sep. You know the 2580. So yeah you're buying the Sep 20. So you still have you're going to be happy if it goes up. Yeah. Just if it. All right. Cool I like it. All right. Anything to do with Oracle as it's already broken out I like the Adobe trade. Yeah James likes this one too. So I did something a little bit more conservative. But it's still bullish because it's run up so much. Up 50% so far this year. Popping again today. So I looked at a call butterfly in here going out to the October cycle. So giving myself some duration 36 days to expiration. And I'm going to buy the at the money 160 strike call one time sell two of the 170 strike calls and then buy one of the 175 strike calls. So in essence, the strategy is you're buying a bullish ten wide call vertical offsetting some of the costs by selling the $5 wide one. Your apex of profitability at or near that short strike near the 170 strike. You can see here from the risk profile. My break even 163 that's about, you know, a percent and a half above 2% above the current share price. So you don't need a big pop in the shares. You just want it to kind of grind up, continue to move higher, go towards that 170 level over the next basically five weeks. Okay. Your apex payout, is that something where you'll close it out or how do you approach that if it if it does, definitely because you'll have some. Yeah. If it's near that at or near that 170 strike you'll have some assignment risk on those options. Right So if it grinds up towards 170 take the whole thing off. Yeah. And you can because you're buying it. You can actually close it out whenever you want right. Right. Yeah. So if it runs up to 170 tomorrow you can close it out tomorrow because it'll expand in price. All right, all right. Cool. All right. So Ryan, the Oracle train here, it's been pretty steady. It just goes stair step up into the right Adobe