Is Options Bot Cheating?

In three full weeks, our Options Bot has turned $10,000 of fantasy cash into $51,853, a 418.5% return. We are very suspicious.

I have never been a day trader. I am mostly a long-term investor, but I will play around with option strategies every once in a while. It is not a game, and it is difficult to be consistently correct. I know there are successful traders out there, but I also think it is exceedingly rare. I’ve always preferred to have time on my side. The expert investors will preach that it is best to buy good companies at fair prices and then just hold. The biggest mistakes are often selling good companies too soon.

Options Bot is taking the opposite approach and seems to be winning. I’m trying to learn from it. What is it doing? On Wednesday, the bot noted:

The market is broadly ripping — SPY +1.56%, QQQ +1.23%, VIX collapsing to 16.57 (-2.3 WoW) — a low-IV, high-momentum environment. Several existing positions are printing massive wins: RDDT +120%, APP +142.8%, both on monster underlying moves (+25% and +26.6% respectively).

I know the VIX is a measure of volatility. I had to look up IV – it means implied volatility. It is also a high-momentum environment. I had to look up what this meant. This combination is generally considered a highly favorable environment. Because the stock is moving with high momentum, the underlying asset's price appreciates. Because IV is low, the cost to enter a directional call option is affordable.

So, is Options Bot playing momentum at the exact time that it is most favorable to do so? We started digging into its trades. I even followed along on one Thursday (or tried).

Thursday, midday, Options Bot reported a position on Mastercard. It bought 15 calls with a $575 strike price and 7/31 expiration at $2.43. There was a huge rotation into quality companies occurring yesterday, and Options Bot was playing the momentum. I went and looked at this option. It had a bid of $0.20 and an ask of $4.65. The logic is ($4.65+$0.20)/2. Basically, splitting the bid/ask. This is the right logic, but there had been 0 trades on this option all day and somehow the bot was going to get a perfect split with 15 contracts? The exit was also very profitable for the bot, of course, as it just split the bid/ask that I could never achieve.

I tried to enter the trade, and the market makers immediately moved the price away from me (or their algorithms did). I was quickly seeing a bid ask of $3.00/$6.00 while the stock was mostly flat. We think this happens often. The math is sound, but it isn’t practical.

Is Options Bot cheating? Not exactly, but we need to make some changes to make this more realistic. We are looking at requiring a minimum daily volume before the bot can enter a position or building in a realistic slippage assumption instead of a perfect bid/ask split. As always, this post is not investment advice. We are learning. Please don’t follow the bot here. That dude is suspicious!

BuffettBot’s Curious Holdings

BuffettBot currently has four holdings: cash, Visa (V), Moody’s (MCO), and MercadoLibre (MELI). Most of these make sense, but one seems a little out of character.

The company that the actual Warren Buffett used to run until very recently, currently holds just under $400 billion in cash and treasury securities. That’s a record high, and a good indication that there is not a lot of fair prices available in either the public or private markets to deploy this absolute hoard of cash. Berkshire is one of the largest holders of U.S. treasury securities in the world. Berkshire’s entire public equity portfolio (Apple, Amex, Coke, etc. combined) is valued at about $288B — meaning the cash pile is actually larger than the entire disclosed stock portfolio. So, the BuffettBot tracks on cash. It can’t find a lot of value either.

The next largest holding of the BuffettBot is Visa. Berkshire Hathaway actually held a small percentage of Visa since 2011 until it was sold in the first quarter of 2026. The Buffettbot is tracking this pretty well. A quick summary of what the bot might be seeing:

• Margins: Gross margin ~98%, operating margin ~65–68%, net margin ~51.7% — about as close to a "toll booth" business model as exists

• Growth: High-single to low-double-digit revenue growth; consensus 5-yr revenue CAGR ~9.4%

• ROIC: ~40% (5-yr average), against an estimated cost of capital around 6% — an enormous spread

• Valuation: Trailing P/E has ranged ~24–30x over the past two quarters; forward ~23–24x

• Owner earnings yield: FCF conversion is exceptional (FCF roughly tracks net income), so the earnings yield is in the same ballpark as the P/E implies — roughly 3.5–4%

• Moat: Two-sided network effect — 130M+ merchant locations on one side, billions of cardholders on the other. Widely rated a "Wide" moat (Morningstar concurs).

It is worth noting that some analysts are starting to note some emerging risks to this business from stablecoins/instant payment processors. This could be a longer-term threat to the 2–3% transaction-fee model. I doubt many would consider Visa to be cheap right now. That puts it squarely in “great business, full price” territory, in my view.

The next largest holding of the Buffettbot is Moody’s (MCO). Berkshire Hathaway has held this stock for 26 years, so Buffettbot is again tracking the real deal on this entry. Similar to Visa, likely not cheap. Moody’s has a Near-duopoly with S&P Global in credit ratings, protected by regulatory licensing (NRSRO status) that makes new entries very difficult. The business is capital-light, and converts intellectual capital into high-margin recurring revenue. Some additional information:

• Margins: Gross margin ~74%, operating margin ~45% GAAP (~53% adjusted), net margin ~32%

• Growth: Q1 2026 revenue +8% YoY to $2.1B; FY2026 guidance calls high-single-digit revenue growth, adjusted diluted EPS of $16.40–$17.00

• ROIC: ~29.5%; ROE ~71% (leverage-boosted)

• Valuation: Trailing P/E ~33.6x, forward ~25–28x, PEG ~2.0x — not cheap by any traditional screen

• Owner earnings yield: TTM FCF ~$2.3–2.6B against an ~$82B market cap ≈ 2.8–3.1% — well below what a strict Buffett-Munger 20–30% margin-of-safety discipline would want

• Moat: Wide, durable, arguably widening (AI-driven demand for "decision-grade" data is a new growth leg on top of the ratings business)

The final holding is MercadoLibre (MELI). This one is an odd entry from the Buffettbot. It seems unlikely that the real Buffett would invest in such a business. That doesn’t mean it’s a bad business, just not the usual entry from the real Buffett. The BuffettBot is likely seeing the following: Two-sided network effect in Latin American e-commerce (more sellers → more buyers → more data → better platform), plus Mercado Pago, which has grown from "let underbanked users pay for stuff" into a real digital-finance business with ~20M credit users. First-party data advantage in ad-tech is also becoming a real margin lever.

• Margins: This is the catch — margins are compressing, not expanding. Q1 2026 operating margin fell to 6.9%, and adjusted free cash flow was actually negative $56M in the quarter

• Growth: Revenue +49% YoY in Q1 2026 to $8.8B; GMV +42%, credit portfolio +87% — very strong top-line, but growth is being bought with heavier investment

• Valuation: Trailing P/E ~46x against a "fair" modeled P/E closer to ~36x by some estimates; DCF-based views would argue it's undervalued by 30–45%, while multiple-based views see it as fully or richly priced — a real split in how analysts are reading it right now

• Owner earnings yield: Not meaningful to quote right now given the negative quarterly FCF print — this is explicitly a "we're sacrificing near-term owner earnings for market share and ecosystem depth" story, closer to growth investor logic than classic Buffett-Munger logic

• Moat: Improving on the data/network side; genuinely uncertain on the credit side (this is a lending book, and lending books can hide problems until they don't)

Before I conclude, I want to note that this isn’t investment advice. I’m just commenting on what our bot is doing and the likely reasoning. The cash hoard it is holding is totally in line with what Buffett/Berkshire are doing now. The company isn’t seeing a lot of value and neither is the bot. I find it really interesting how this bot is executing on this strategy!

Welcome to InvestorBot Live!

Welcome to InvestorBot Live! It all starts here. Three investing philosophies, four AI bots, one live competition. We are building this site to further our knowledge of equity markets and artificial intelligence.

This is the perfect collaboration project for my brother and me. I have 30 years of investing experience, having studied all the masters, and my brother has a lifelong interest in technology and deep interest in the growth of artificial intelligence. As we began sharing information, it became obvious that this project was worth sharing. We were fascinated with how the bots were applying the strategies we were giving them and we were both learning from what they were doing.

As we launch, we have four bots executing their strategies. The trading is not real, but it is based on current market conditions. The universe of equities are small to start. It is based on a screen of stocks that exhibit high returns on invested capital. Each bot has a fully documented strategy the scans this small universe of companies at the market open, mid-day, and just before the market close. The competition is tracked since inception and broken down week by week. You always get to see the each bot’s holdings and their summary for the week. Track this competition live!

We do not view this as a stock picking service. This is not investing advice. We view this as a process of learning. We love seeing how the bots are executing the strategies that we gave them. We also created a bot that attempts to synthesize the other three strategies. It is trying to do what we are trying to do, learn what works best. The best part is that the bots are programmed to learn and that we get to learn right along with them!

We will continue to add strategies and the bots will continue to improve. We will comment along the way to share what we are seeing. Soon we will open subscriptions for the deeper learning and decision process of the bots. Our universe of stocks will expand. The bots will improve. Pick a strategy, and follow along to see what strategy wins!