CRWV — Tuition Trade: Extraction Without a Fair-Value Anchor

This case shows what happens when capital extraction is applied to the wrong kind of business. On paper, the trade started with a large covered call premium that seemed attractive. In practice, the underlying company had weak fundamentals and too much debt, and you did not have a clear, defensible fair value.

When the thesis broke, CRWV was sold for a loss despite the strong option income. This became a tuition trade that directly led to your Fair-Value Anchor Rule: no fair value, no 2028 survival confidence, no long-dated capital extraction.

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What actually happened in CRWV

The project combined stock ownership with a deep ITM covered call to “extract” capital:

  • Original stock cost (total): $13,520.00
  • Call premium received (P₁): $9,349.35

Economically, after receiving premium, your locked capital (real risk) in CRWV was:

Locked Capital (Economic)

$4,170.65

Option P/L

$5,701.35

Stock P/L

$-6,964.00

Total Project P/L

$-1,262.65

When fundamentals deteriorated, you exited:

  • Sold shares for $6,556.00
  • Paid $3,648.00 to buy back the call

Net cash from closing the project:

Cash Back on Close (Sale − BTC) $2,908.00
Locked Capital at Risk $4,170.65
Loss on Locked Capital $-1,262.65
Return on Locked Capital -30.27%
Key point: even with a strong option profit on paper, the weak stock leg more than offset it. Premium alone could not rescue a structurally fragile business.

Framework diagnosis — why CRWV fails the rules

In hindsight, CRWV violated several parts of the Capital Extraction Framework:

  • No fair-value anchor: you did not have a clear, defensible fair value. That means you could not define a “safe” level where you would be comfortable effectively being forced to sell or hold.
  • Business quality concerns: debt and fundamentals were weak, and a drift toward very low prices (e.g., $5) with no recovery was a realistic path.
  • Wrong bucket: this was neither a high-quality overvalued name (for extraction) nor a clearly undervalued quality business (for CSPs). It should have been a simple “No Trade”.

Your updated rule (born from this trade)

CRWV became the tuition that crystallized your Fair-Value Anchor Rule:

Fair-Value Anchor Rule:
  • Only run long-dated capital extraction on businesses where you can estimate fair value.
  • Require high confidence the company will be healthy and listed through expiry.
  • If you can’t estimate fair value or don’t trust the balance sheet, do not extract — no matter how big the premium looks.

In contrast with the ORCL case, where locked capital sits near a solid fair value and the project targets >20% annualized on quality, CRWV shows that premium without quality and valuation discipline is not enough.

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Disclaimer: Educational illustration only; not investment advice. Options involve risk, including the risk of total loss. Use capital extraction only where you have a clear valuation anchor and strong conviction in the underlying business quality.