Plus: Earnings season begins April 24, 2023 Sign Up | Made in Canada IN THIS ISSUE Estimated read time: 8 mins 🏒 Hockey happenings 💻 Chip congestion ✏️ Option orientation The Jets’ Morgan Barron (above) took a skate to the face, got over 75 stitches, then came back to finish a playoff game against the Golden Knights last week. Maybe because he knew how important the playoffs are for an NHL team’s hopes of turning a profit. For more on hockey finances, see below. | Getty Images THE WEEK IN MARKETS Earnings Update: So Far, Not So Bad! Happy earnings season, everyone! A slew of major companies reported Q1 profits last week. How did they do? Not terrible, all things considered. So far, companies are earning on average 6% less compared with a year ago, largely thanks to rising interest rates and inflation. But earnings season hasn’t been the calamity that many Wall Streeters feared. Investors definitely punished companies — like Tesla (-11% last week) and chip-maker ASML (down 5% since mid-April) — that posted disappointing results. But they’ve also rewarded companies — Bank of America, Morgan Stanley, Procter & Gamble, etc. — with stable earnings. (Here’s a really detailed earnings breakdown.) Overall, the TSX ended last week up about 0.5%, while the S&P was flat and Nasdaq was down a bit. This week will be busy, with some 200 major companies reporting. Among them: Google, Amazon, and Microsoft. Canada’s major companies will begin reporting earnings next week. Buckle up. WHAT HAPPENED LAST WEEK IMPORTANT Your tax obligations are not on strike. On Wednesday, 35,000 CRA workers joined another 120,000 federal employees on the picket line — just two weeks before the May 1 tax deadline. It’s one of Canada’s largest strikes ever, and it could cost the economy $200 million per day. But don’t think their walkout means you’ll get an extension on that tax deadline: while things like passports are on hold, most returns will be processed automatically, and taxpayers will still be penalized for filing late. Automakers don’t like Tesla’s musk. In its quarterly earnings announcement on Tuesday, Tesla said revenue jumped by 24% from a year ago — within a microjoule of expectations — but profit was actually down 24% for the quarter. Why the discrepancy? Price cuts. With six of them already this year, Musk has started his own automotive price war. X AE A-XII’s dad says the margin-shaving is necessary to combat high interest rates and economic uncertainty, and he’s willing to sacrifice short-term profitability to grab long-term market share — especially as more legacy automakers crowd the EV market. The NHL’s earning season is upon us. Three Canadian teams are in the playoffs — the Leafs, Jets, and Oilers — giving us two shots at bringing home the Cup. But when it comes to the real prize of turning a profit, all 16 postseason contenders are winners already. Why? The NHL doesn’t have TV mega-deals like the NBA and the NFL, so teams rely heavily on sales from playoff tickets, which get marked up by as much as 100%. Last season, for example, the New York Rangers made US$50 million (one-fifth of their total revenue) off of 10 home playoff games. All the more reason for the Leafs to break their 19-year streak of losing in the first round. INTERESTING Tiff said the magic words: soft landing. March inflation numbers came out Tuesday, and they keep getting better. At just over 4%, inflation is still twice what we need it to be to stop writing this same item every month, but even the smile-stingy head of the Bank of Canada seemed pleased. Tiff says he expects inflation to get to 2% in 2024. Which means interest rates can likely stay where they are and we can maybe even use the phrase “home stretch” at some point soon. Too many (computer) chips can ruin a party. In its earnings report on Tuesday, TSMC, the world’s largest chipmaker, lowered revenue expectations for next quarter by 16%. The issue is demand, which is … gone. After boosting production to keep up with the pandemic’s supply-chain issues and crypto boom, semiconductor manufacturers are now faced with a surplus as inflation-squeezed consumers hold onto their old phones and electronics. But there is hope, both for that glut and investors: AI. It takes a lot of chips to gain sentience and take over the world. Getting Shanghaied has been good for Ether. On April 12, the Ethereum network got its long-awaited Shanghai upgrade. Anyone with staked ETH (funds offered as collateral to secure the network and earn interest) can, for the first time in three years, get it back. Despite fears the upgrade would lead to a ton of stakers pulling their money, so far it’s been the opposite. In the first four days after the upgrade, Ethereum saw $500 million dollars of new investment. FROM OUR SPONSOR Must be new or existing Wealthsimple client. Make a deposit or transfer of at least $500 or essay method to enter. Limit of 1 entry per entrant. No purch nec. Canadian resident (excl. Quebec) and age of majority+ only. STQ required. Full rules wsim.co/investyourrefund-en THE FOMO INDEX by Stacey Woods IMPORTANT 🌲 That’s a “b,” not an “m”: audit finds Ottawa is way behind on goal to plant 2 billion trees by 2030. Source 📱 Samsung might switch phone search engines to Bing, which could cost Google US$3B a year and all their dignity. Source 🧑‍💻 Google Meet now lets you turn off other people’s video feeds, assuming you’re okay with missing your co-workers’ cats. Source 🚀 He built this rocket! Musk’s Starship suffers “rapid unscheduled disassembly” shortly after launch. Source CRASH & BURN TO THE MOON ✈️ Huge Russian cargo plane stranded at Pearson owes $440k in parking fines. And its bar tab is through the roof. Source 🔮 New survey finds 25% of millennials get financial advice from psychics, which is just foolish and really annoys their astrologers. Source 🔨 50K sledgehammers recalled in Canada for rapid unscheduled disassembly. (Their heads fly off.) Source 🏆 The Gate Appreciation Society declared a Welsh gate the best gate in the world. Now their work here is done. Source WHO CARES WHAT’S UP THIS WEEK New housing price info comes out! (Monday) Do you really need a second bathroom? Could you get by without the first? Earnings week for Big Tech! (Tuesday) Apple and Microsoft kick things off, followed by Facebook, Samsung, and Amazon later in the week. SHARE TLDR WITH YOUR FRIENDS 🤝 Put this link in your group chats, your Slack threads, tattoo it on your back — whatever works for you! THE BIG IMPORTANT STORY DERIVATIVES People Suddenly Love Options. One Question: What Even Are They? Over the past few years, options have become wildly popular. In February, a record 68 million options contracts were traded in a single day, whereas a decade ago, fewer than 5 million of such trades were executed each day on average. Why such a spike in interest? In part, it’s because options are a way to make money in the current market — which is fairly choppy, and also fairly indecisive. The other part is that investing apps have made it way easier for most people to trade options. So, what are options? Basically, they’re contracts that give you, as the name suggests, the option to buy or sell a stock at a predetermined future price. They essentially let you guess whether stocks will go up or down, and make money if you’re right. But trying to trade options when you don't understand them is risky business. And, here at TLDR, this is just the kind of thing we like explaining. Here it goes: So what are options? When you buy a stock, you buy a tiny piece of a company, right? When you buy an option, you buy a contract that gives you the right, though not the obligation, to buy or sell a stock, or an ETF, at a specific price and by a specific date. How does it work when options go right? Let’s say Apple is trading at $160 a share, but you’ve done your research and you believe it’s headed up. So you buy an options contract that gives you the right to purchase 100 shares of $AAPL for $170 a share over the next two months. (We didn’t pick 100 shares at random: a typical options contract gives you the right to buy or sell 100 shares of the underlying stock; i.e., 1 contract = 100 shares.) The thing is, you have to pay a price, or a premium, to buy the option; let’s say it’s $5/share, or $500 for your 100-share contract. So, say, it turns out you were right and Apple is now trading at $180. Nice! You can do one of two things: (1) sell your contract, which is now worth $1,000, for a profit to whoever wants to buy 100 Apple shares. Or, (2) you can exercise your options and buy the 100 Apple shares yourself at the locked-in price (aka the strike price) of $170. If you do the latter and immediately sell those shares for the going rate of $180/share, you’ll pocket $10/share (or $1,000 for one contract). But, since you had to pay a $500 premium upfront, you ultimately profit $500. And what happens when options don’t go so right? Here’s the catch: say, instead of going up to $180 as in our example above, Apple shares fall to $100. In that case, you’ll probably let your options contract expire when the term ends, since you probably won’t be able to find anyone willing to pay all that much money for it. Wait, so why bother trading options? To hedge downside risk: If you suspect stocks you own might fall and yet you don’t want to risk selling, you can hedge by buying options. For instance, if you bought an option to sell your Apple shares at $160/share. Then, oh no!, Apple falls to $100; in that case, you can exercise your contract and offload your shares at $160. (FWIW: “call” options give you the right to buy a stock at a predetermined price, which is useful when you think a stock will rise; “put” options are a contract to sell at a certain price, which is handy if you think a stock will go down.) To take advantage of price movements: When you buy or sell a stock, you’re basically saying you think that stock will simply go up or down in value. Options let you be more specific about when and by how much a stock will potentially rise or fall. For instance, if you think a company’s earnings call will drive up its stock, you can buy a call option for the right to buy the stock right after the earnings release. Then, if your hunch proves right, you can offload the options on a buyer or exercise the options yourself. To make more with less: Options are usually cheaper than the underlying stock, and you can potentially make more money with less if you make savvy trades. In our Apple example above, for instance, you doubled your $500 investment — a great return, especially since the stock only rose by about 10%. Options that require specific, less likely scenarios to pay off — like requiring bigger price moves to be “in the money” or ones that expire in a matter or days — are cheapest and offer the biggest potential returns. On the flip side, of course, they have the longest odds of paying off. So, fair warning. Read More: “What is Options Trading and How Does it Work?” OTHER VERY GOOD READS 💅 Is There Life After Influencing?* Going from brand deals to a 9-to-5 | The New York Times 🥑 The Myth of the Broke Millennial* Maybe young adults aren’t financially doomed after all? | The Atlantic 🌳 The Struggle to Create A National Urban Park in Windsor “This land means everything” | The Narwhal 💸 A Guide to Every Annoying Tax Question You Have We promise the answers are easy to understand | Wealthsimple *Article is paywalled, which, yeah, is kind of annoying. But we think good journalism is worth paying for. THE WISDOM OF TWITTER You’re not even really trying at business until you’re taking at least 100 cold showers a day. THOUGHTS ON TODAY’S ISSUE? Love it Good So so This week’s newsletter contributors: Brennan Doherty (writer), Devin Gordon (writer), Stacey Woods (writer), Sarah Rieger (news writer), Ambrose Martos (fact checker), Ciara Rickard (copy editor), Sara Black McCulloch (fact checker), Jared Sullivan (senior editor), Peter Martin (senior editor), Kat Angus (managing editor), and Devin Friedman (editor-in-chief). Correction: A small number of TLDR subscribers received a version of last week’s edition that misstated the YTD performance of the TSX index. It had risen by 6% YTD, not 2%. Sorry about that. Disclosures: Contributors to this newsletter own stock in Google, Amazon, and Microsoft. Wealthsimple Media Inc. 80 Spadina Ave Suite 400 Toronto, ON, M5V 2J4 Replies to this email address are not monitored. Have questions? Visit our Help Centre or submit a request to our Client Support team. PRIVACY POLICY UNSUBSCRIBE TLDR is offered by Wealthsimple Media Inc. and is for informational purposes only. Any views expressed are those of the individual author and/or of Wealthsimple Media Inc., not of Wealthsimple Financial Corp or any of its other subsidiaries or affiliates. The content in TLDR is not investment advice, a recommendation to buy or sell assets or securities, nor any other kind of professional advice. TLDR is not a research report and should not serve as the basis for making investment decisions. Wealthsimple Media Inc. does not endorse any third-party views referenced in this content. When you invest, your money is at risk and it is possible that you may lose some or all of your investment. Past performance is not a guarantee of future results. Historical returns, hypothetical returns, expected returns and images included in this content are for illustrative purposes only. Always research before investing. © 2023 Wealthsimple Media Inc.