How to Play ‘Small Ball’ With Market Hopes High? A Contrarian SaaS Trade
Friday saw the successful debut of Space Exploration Technologies Corp. ($SPCX) which became the largest IPO in U.S. history.
Hope continues that an agreement with Iran will be reached soon to end the ongoing conflict and reopen the strategically important Strait of Hormuz. Details for this deal remain sparse and unclear.
I continue to remain conservatively positioned within my own portfolio and I am focused on playing “small ball” by making covered call trades. Today’s trade idea is around a SaaS concern, a sector that has become quite out of favor in recent quarters on growing concerns around AI disruption.
The company in question is called Klaviyo, Inc. ($KVYO). The company operates a customer relationship management platform that captures, stores and analyzes clients’ consumer data while providing AI-driven marketing and customer experience solutions. The stock currently trades around $14.00 a share and sports an approximate market capitalization of just north of $4 billion. The company came public in the summer of 2023 at $30 per. The equity hit its high-water mark of nearly $50 a share early in 2025 and consistently has moved consistently down from there.
This software-as-a-service (SaaS) technology concern has nearly 200,000 clients – primarily retail and e-commerce – in 100-plus countries across the globe. The platform’s capabilities fall across omnichannel marketing, customer service and data and analytics. Klaviyo’s offerings allow shoppers to track orders, search for products, redeem rewards, manage subscriptions and receive customer support. Klaviyo also provides its clients an AI-powered 24/7 automated support function featured across digital channels that answers customer questions, resolves issues and completes purchases. On the data side, the platform can amalgamate customer data and provides tools for clients to run advanced reporting and predictive analysis.
All of these capabilities are provided via a subscription-based service. One of the best traits of this company is its pristine, debt-free balance sheet that held net cash of nearly $1 billion at the end of Q1. In March, the company authorized a large $500 million stock buyback authorization and utilized $100 million for repurchases in March. Leaving $400 million left on the program which would retire nearly 10% of the outstanding float at current prices.
Despite worries around AI disruption, the company posted Q1 numbers that bested both top- and bottom-line expectations and management slightly boosted forward guidance. The current analyst firm consensus is that over the next few years Klaviyo will see annual profit growth in the low to mid-20s on a revenue CAGR of 20% from 2026 to 2028. Given that, the stock trading at 16.5 times forward earnings is more than reasonable. It is cheaper still considering the large amount of net cash on the company’s balance sheet. I can also either generate a solid return or garner a significantly lower entry point with the following covered call trade around Klaviyo below.
Option Strategy:
Here is how one can establish a position in KVYO using a covered call strategy.
Selecting the January $12.50 call strikes, fashion a covered call order with a net debit in the $9.70 to $10.10 a share range (net stock price – option premium). This strategy delivers downside protection of 30% across the trade expiration. This strategy provides 21% upside potential over the option duration even if the stock trades down just over 10% over the option duration.
At the time of publication, Jensen was long KVYO.
