McAlpha: Renting vs. Owning Conviction

Dark Arts Target Confluent (CFLT) Receives Cash Bid From IBM

You can’t always get what you want,
But if you try sometimes,
You might find
You get what you need.

—The Rolling Stones

This August, we flagged an unusual “dark arts” options structure in Confluent (CFLT) in “A Trade Structure With Informational Edge”. The stock was at $17. Yesterday, IBM announced that they’re acquiring it for $31 cash—an 82% return in four months on the stock alone; the trader who put on the options structure made approximately $16.5 million and collected a net premium up front.

Since the deal was leaked to the press in October, our direct messages have been flooded with one question: “What’s the next CFLT trade?”

That’s understandable. Financial media from CNBC to Barrons to Substack to Twitter have us conditioned like Pavlov’s dogs—ticker, trade, repeat.

But here’s what we learned the hard way, and what we wish someone had told us decades ago: CFLT wasn’t the outcome. It was merely an outcome.

Building the processes and judgment that lead to outcomes like CFLT takes longer to teach and more effort to learn. But that’s what actually carries forward, and it’s ultimately worth far more than any single trade.

Twitter/X: @bewaterltd | Mojo Website: bewaterltd.com

Not investment advice. For educational/informational purposes only. See Disclaimer.

Dark Arts: Reading The CFLT Tea Leaves

We sift through all kinds of unusual market signals daily. The August trade—17,000 calendar spreads in CFLT—was one we chose to highlight because it was so unique: front-month long gamma, back-end short vega, collected as a net credit on an inverted volatility curve.

If you trade options, you know that structure is rare. And oddly specific. It’s not a directional bet. It’s not a hedge. It generally only makes economic sense if whoever put it on knows three very specific things:

1. A major event is coming

2. When it will happen (tight enough timing to layer front and back month)

3. Where the stock will land (mid-20s to low-30s range)

The options position was visible to anyone watching the tape. But most people don’t know what they’re looking at, and it gets drowned out amidst the sea of “unusual” options flow commentary.

What made this so interesting wasn’t fundamental analysis—we knew virtually nothing about Confluent’s business or valuation. We simply recognized that someone had just telegraphed to the entire market exactly what was going to happen—and almost nobody was listening.

Fast forward four months and IBM announces a $31 cash deal.

The McAlpha Trap: Why Financial Fast Food Fails

The success of the Confluent trade obscures the more important lesson. If we just hand you “CFLT at $17, buy it,” and it works, you might have made money—this time.

But then what?

When the next “unusual” options structure appears, how will you determine if it is signal or noise? And what about ideas that have nothing to do with options flow? Without understanding why CFLT was interesting, you can’t evaluate the next one that looks similar, and you’ll miss entirely the ones that look nothing like it.

Most financial media optimizes for what feels immediately useful. We call this McAlpha. It’s designed to provide immediate gratification, like McDonalds takeout.

But there’s a tradeoff. You’re generally eating financial fast food.

The martial arts have McDojos—schools that churn out black belts to anyone who pays long enough. The credentials look real until you need them.

McAlpha is similar. You end up renting someone else’s conviction. When the market shifts or the position moves against you, you’re holding something you can’t defend because the thesis was never really yours.

Very early in our careers, we fell into this trap. The tuition was expensive—and humbling.

Process Over Trades: Building Your Own Edge

The CFLT trade is what we call “dark arts” pattern recognition—reading market structure for what’s being telegraphed but not yet announced. It’s one unique analytical framework that we use among many. We’ve written more about some of these frameworks, for example here, here, and here.

We could send out tickers every week. There’s clearly demand for it. But here’s what is more valuable: helping you to develop your own investment philosophy and processes. That’s what we focus on.

That means understanding how to read options structures, credit market signals, and governance that telegraph events before they occur. Exploring how merger arbitrage sharpens your investment process even if you never trade a single merger. Understanding how and why Multiflation—the end of 40 years of “Goldilocks” markets—is breaking four decades of investment playbooks and asset allocation models, and what to do about it. Learning how ‘modern’ market structures detach prices from reality—such as ETF mechanics, derivatives, and algorithmic feedback loops—create new risks and opportunities for investors.

By focusing on process over outcomes and developing your own analytical capability, you’ll know what you’re looking at and how it fits into your personal objectives when the next opportunity appears. In this way, and only in this way, can you build conviction that’s genuinely yours—not borrowed from someone else’s writeup or Tweet thread.

This requires more work than following a tip sheet. You have to read, think, adapt. But in a regime as challenging as Multiflation—where 50 years of economic assumptions are dissolving in real time—developing your own judgment and process is the only durable edge.

Most of what we share won’t be as perfect as CFLT. Many signals won’t work at all. We don’t have all the answers, or even most of them. Far from it. But after years of both spectacular wins and painful losses, we’ve learned that philosophy and process matter more than any single trade.

A Different Kind Of Community

As we wrote in the introduction to the Sorcerer’s Apprentice:

Our goal is to create a community of adventurous minds committed to staying ahead of the curve and uncovering opportunity amidst the chaos. Our community is not for those seeking easy answers, quick fixes, or an echo chamber. Instead, it is for those who understand that navigating the complexities of our rapidly changing world requires ongoing learning, unlearning, and adaptation…

If you’re ready to go beyond soundbites and surface-level analysis, challenge long-held assumptions, and develop the intellectual and real-world tools required to thrive in a time of accelerating change, join us.

That’s what we’re building here—a community of people intellectually curious enough to dig deeper and honest enough to admit when we’re wrong.

You’re already reading Substack newsletters, earnings reports, financial news, Twitter threads (even our own threads), SEC filings. You’re drowning in information. The problem is knowing what to do with it.

Most financial media gives us fish. We’re more interested in honing our fishing skills.

In markets where almost everything is financial fast food—and much of what remains is becoming commoditized by AI and algorithms—the only alpha left is how you think. Your philosophy and process. Our work exists to help you think in a way that can’t be automated, copied, or taken from you.

You can’t always get what you want. But if you’re willing to do the work, you might find you get what you need.