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OG poster u/PlayFree_Bird
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Alright, I hate to say it, but there is some less-than-ideal information circulating out there, particularly about the famed "gamma squeeze" we hear so much about these days. I'll get to that. Let's go through the questions you simpletons want to know, as explained by a mouth-breathing fool who has managed to convince you he knows what he's talking about:

Did we win today? Is it endgame?

Kind of. Be patient.

In what ways did we win?

First, there was the obvious victory of bouncing back 65% today after the worst market manipulation I've ever witnessed. We kept the upward momentum going.
Secondly, every day you finish higher is another day the shorts are underwater. If you are perpetually going up, the walls are closing in on them.
Finally, a lot of put options expired worthless today while a number of call options expired in-the-money. It's always good to make put holders lose money because you drain the bank accounts of people betting against you.

Yes! Call options! We finished above $320 and get a gamma squeeze to infinity now, right?

No. That's not how this works. Too many people don't quite understand what a gamma squeeze is.
A gamma squeeze happens when call option sellers (or "writers") have to hedge their naked calls by buying stocks. They do this because the risk of selling naked calls is theoretically infinite if they don't. It's called delta hedging. You don't need to know all the fancy math ("delta" and "gamma" are those greek symbols for nerds), just understand this: as it becomes more probable that the call option you sold will cost you money, you hedge more.
This is a continuous PROCESS, not a discreet moment in time. The market makers and hedge funds and institutions selling you calls don't wake up on Friday morning and think, "Shit! I think I'm going to lose everything if these stocks keep going up! I have to BUY NOW!!!" That would be stupid. They are hedging all the way up. I guarantee you that most of the calls that were exercised at $320 today were already covered. They already went out and bought those shares and most of the upwards pressure that places on the market is priced in already.

So, no gamma squeeze?

Probably not significantly. They're not going to be madly rushing out on Monday to buy shit they already own for the most part.

Why are people talking about a gamma squeeze at $320, then?

We did have a gamma squeeze at $320. On Wednesday, two days ago. The price exceeded $320 (then the highest strike price on the books) and promptly surged to $371 before coming back down to around $320. That's what a gamma squeeze is: a frenzied rush by call sellers to cover calls.
It typically happens BEFORE expiration, not after. It's rare for market makers to get so caught with their pants down that they have to get squeezed for the previous week's calls on a Monday. I don't know where this idea of a gamma squeeze now at $320 is coming from.

This hurts my feelings. So, what's so great about the $320 threshold, anyway? Did it matter at all?

It's still a good thing. There may have been a few lingering naked calls to cover. And, like I said, it's always good to make put-holders lose money because stick it to the 🌈🐻, that's why.
$320 was a significant level because there were quite a few open call options at that strike. You can see the entire option chain here: https://www.nasdaq.com/market-activity/stocks/gme/option-chain
Go through and count up all the January 29th options that were in-the-money at today's close. I think maybe 90,000 or something? Screw it, I didn't count. Somebody who can figure out how to use a calculator can add those up. Multiply that number by 100 (because option contracts are sold in groups of 100) and that's how many shares need to change hands thanks to contracts expiring ITM.
It may be that with so many shares needing to change hands and so little liquidity in this market, some weird things could happen.

What weird things?

Well, if nothing else, a lot of shares will need to be tied up as the process of settling calls plays out.
You have to remember that when somebody says they own shares, they don't necessarily own own the shares right at that moment.
When you press "buy" on your phone and it says your order was filled, that doesn't mean that the process happens instantaneously. For all intents and purposes as far as you are concerned, sure, the process looks instant. However, there's a lot of messy stuff that happens on the back-end of the system between the brokers and the clearing houses. The clearing houses are where the daily tab gets settled: who owes whom and what they owe and at what price, etc.
Monday could be interesting as this tab for millions of stocks (in a market with only 50-something million shares actively circulating) gets settled. It might not be crazy, but it could. We'll see.
Michael Burry (Christian Bale, for all you noobs) seems to think that all the naked short-selling above the float will result in a shit-storm when people actually go to get their shares back: https://twitter.com/michaeljburry/status/1355221824661983233
Liquidity crunch + lots of shares being moved around + nobody knows where they all are currently = potential nightmare for Wall Street.

I just want my infinite short squeeze and my tendies, so how do we get the MOASS?

Something needs to be the catalyst. Something needs to get the short sellers really underwater, so much so that they are drowning. That's why there's been so much hype about gamma squeezes; the gamma and short squeezes are two separate things, but the gamma squeezing has been really good to us lately. It has triggered some crazy upwards price movements. I still think one was about to happen yesterday morning that would have triggered the squeeze-pocalypse, the Mother of All Short Squeezes. The bastards at the brokerages (acting with and for the clearing houses), took your tendies. It's criminal what played out.
I actually think a gamma squeeze was possible today, as well, as the price shot up to $378 around noon. If it had gotten to $400, it stood a very good chance of running up to $500, which would have caused a run up to $650 and beyond. Then Robinhood said, "Oh, actually, you plebs cannot buy 5 shares anymore, only 2 now." The price came back down again.
Oddly enough, the S&P500 sold off over a full percentage point (that's a lot of money) right after GME hit that $378 peak. Do you think this doesn't freak the finance world out? They know a gamma squeeze is like the fuse on a firework. It consumes itself until it ignites the rocket.

How will Wall Street defend themselves?

They will try to keep snipping the fuse. That's what all these restrictions on brokerages are about. They are trying to defuse the situation slowly because having it all get sorted out quickly and frantically is no good for them.
We need enough upwards price momentum that those option chains keep going up and up and feeding on themselves. They need to become a self-sustaining chain reaction, fed by hedging pressure. And you need to put pressure on your elected representatives to tell them that Wall Street cannot be allowed to just shut down the game when they are losing. I hate to tell you this, but the squeeze has so far been stopped purely by the losers declaring that it will not happen at any cost. It's bullshit. Eat the rich. But there it is.

Do you feel you've used the word "squeeze" too much by now?

Yes. I've been writing and looking at the word "squeeze" so much that it is starting to lose its meaning. Squeeze. Squeeze. Squeeeeeeze.
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EDIT:
TL;DR Shares most likely already bought so no gamma squeeze, doesn't matter anyway 🙌💎🚀 🙌💎🚀 🙌💎🚀
EDIT 2:
STOP THANKING ME FOR THIS POST, RETARDS! Literally the first sentence is me giving credit to the original poster, THANK HIM.

Greeting Theta Gang boys and girls,
I hope you're well and not bankrupt after last week. I'm just now recovering mentally myself. I saw a few WSB converts and some newbies asking for tips, so here you go. V2 of my Options guide. I hope it helps.
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I spent a huge amount of time learning about options and tried to distill my knowledge down into a helpful guide. This should especially be useful for newbies and growing options traders.
While I feel I’m a successful trader, I'm not a guru and my advice is not meant to be gospel, but this will hopefully be a good starting point, teach you a lot, and make you a better trader. I plan to keep typing up more info from my notebook, expanding this guide, and posting it every couple months.
Any feedback or additions are appreciated
Per requests, I added details of good and bad trades I made. Some painful lessons learned are now included. I also tried to organize this better as it got longer.
Here's what I tell options beginners:
I would strongly recommend buying a beginner's options book and read it cover to cover. That helped me a lot.
I like this beginner book: https://www.amazon.com/dp/B00GWSXX8U/ref=cm_sw_r_cp_apa_OxNDFb2GK9YW7
Helpful websites:

• Tasty Trade (TT) and Ally Invest have helpful articles and videos.
  • https://www.tastytrade.com/tt
  • https://www.youtube.com/c/tastytrade1/featured
• Ally training:
  • What is options trading? https://www.ally.com/do-it-right/investing/trading-options-for-beginners/?CP=EM2012111
  • Top 10 options mistakes: https://www.ally.com/do-it-right/investing/top-10-option-trading-mistakes/?CP=EM2012111
• 3 common option mistakes: https://us.etrade.com/knowledge/library/options/common-mistakes-options-traders-make
• Common options strategies: https://www.optionsbro.com/basic-options-strategies/
• Investopedia has tons of great investing info for stocks and options: https://www.investopedia.com/
• Kamikaze Cash Theta Gang Videos: https://youtube.com/playlist?list=PLOweupE79XXiBaeH_xBpkUcYUsrAaKQen
• 20 rules of professional traders: https://www.investopedia.com/articles/active-trading/022715/20-rules-followed-professional-traders.asp

Don't trade until you understand:

• You can lose your entire contract value when buying.
• You can lose a lot of money when selling "naked", theoretically unlimited.
• How option expiration works.
• Theta (decay) and how it works. This is imperative since it's attrition when buying and a payout when selling. https://www.optionseducation.org/advancedconcepts/theta
• DTE: Days till expiration/expiry
• Options positions with respect to price:
  • ITM: In the money; strike is below stock value. Signif
  • ATM: At the money; strike is just at or above the stock value, often very highly traded. Can be very effective with moderate - long term expiry.
  • NTM: Near the money; strike is above the stock value, but fairly close. Slightly unofficial term.
  • OTM: Out of the money; price is at least a few strikes from the current stock price. I would say 10-30% over stock price.
  • Very OTM: Not a real definition, this is essentially a lottery ticket. Cheap, but almost certain to expire worthless unless there is explosive movement.
• Understand delta in general and how delta changes with ITM and OTM options.
• Understand all the greeks at a high level, as you get better understand them well. The greeks: https://www.optionsplaybook.com/options-introduction/option-greeks/
• IV, IV crush, and how IV affects pricing. In general, you want to sell when IV is high and buy when the IV is low. Increasing IV is good for held calls/puts. IV drop or crush is generally good for sellers.
• Selling options can be quite beneficial. Once you have a good general understanding, lookup thetagang . Kamikaze Cash has good youtube videos on most theta strategies (linked above). I personally believe selling options (especially cash secured) is much safer and can consistently make you profits. Θ Gang 4 life.
• FOMO and how to avoid chasing a dangerous trend. DO NOT CHASE FROM FOMO!
• What intrinsic and extrinsic value are. Know how they are affected by being exercised/assigned and how theta affects them.
• Understand that some of WSB recommendations are straight up high-risk gambling and factor in the information accordingly. Be careful with Meme stocks and the survivorship bias on YOLO plays. However, I love the sub and think it’s hilarious. It has a lot of valuable information / DD if you are comfortable with the “colorful” language. It’s also great if you like rocket ship emojis.

Basics / Mechanics

• Understand the 4 "main" option types. Buying or selling a call and buying or selling a put. Spreads and more complex multi-legged option strategies are based off these in some way (see below)
• You can sell calls with 100 shares of stock or if you own an underlying longer term option; see LEAPS and PMCCs later. Selling calls naked is incredibly risky and often requires Level 4 (very advanced) permissions and usually a lot of capital. I will literally never sell calls naked since I don't want to ruin my life and end up living in a dumpster eating saltine crackers.
• Puts can be sold/written cash covered (cash secured), which means you have the cash in your account to buy 100 shares. Your broker will put this money on hold until the trade is closed. Puts can be sold "naked" using Margin and Level 3 (with most brokers). Your broker will hold a percentage of cost of 100 shares (often 30-40%, 100% on meme stocks) allowing you to sell more puts. This increases your available capital/power as well as increasing risk.

General Tips and Ideas:

• Don't EVER leave (short) spreads open on expiration day, close them. (more details below)
• Start off trading very small. Slowly build up over weeks / months. You need to get accustomed to a fifty dollar swing a day, then a few hundred, then a few thousand. You need to ensure you don't get emotional (see below). I started trading options with 5k, then 25k, 50k, and later over 100k. I added my own funds over time and used my gains to build my account. Don’t go all in immediately, that’s dangerous and unwise.
• Especially as you build up the amount of money you have invested, keep it diversified among several stocks.
  • Don't go all in on one thing, ever. Be able to take a hit from one stock and not mortally wound your portfolio.
  • A company may be doing great, then there's a major product issue out of nowhere. If you are overexposed in one stock this can really hurt you.
  • I had to roll options I sold that were about to expire completely worthless because FDX's CEO changed and the stock took a hard dip.
• Don't trade emotionally. If you realize you are emotionally trading for vengeance, you should probably exit the trade and cool off for several days with that stock. Same if you get caught up in a wave of hysteria.
• Have a plan for every trade, ideally with entries / exits that are specific values, ranges, or a set condition. This helps remove emotions. This is super important for strong movements and high volatility (see later).
• Use an options profit calculator from your broker or an online one before entering a "new" trade, especially a complex multi legged trade: https://www.optionsprofitcalculator.com/
• “Rolling” an option: Closing your existing option and opening a similar one at different strike and/or expiration.
  • Rolling a call “Up” would be selling a call you own and buying a cheaper call at a higher strike.
  • Rolling a put “Down and out” closes your original one and buying or selling one at a lower strike at a longer expiry.
  • Better broker interfaces have a literal “Roll” button. I know E-trade does. You can manually do it by selecting relevant contract legs.
• If you have a losing trade, re-evaluate it. If your initial assumption is definitely incorrect, close it. Don't stay in losing trades forever and lose the entire value of the option over stubbornness. If you re-evaluate and you think your assumption was right, hold, potentially consider adding another cheaper option (or buy another call / put). Rolling out sold options can help here.
• Don't try to day trade, especially with options. It's statistically unlikely to be profitable. Day-trading with options introduces extra liquidity risks and is dangerous, especially with spreads.
• Try not to over-trade, you'll likely mis-time the market over time. When I get emotional I over trade, then lose additional money on wash sales. If you scale your entries into positions it should help alleviate your desire to exit positions when they turn badly against you. Whenever I buy calls I do it at larger increments after W almost made me loss my hair; luckily it eventually came back.
• NEVER enter a position on a stock you have no idea about, especially when you read about it online or heard about it from some rando.
• At market open options contracts are often volatile and inflated. Buying during this time can be more expensive. Options are usually cheaper mid-day, I read somewhere 2-3PM is cheapest. I’ve had success around 12-1PM EST after prices settle.
• Try wheeling on cheaper stocks once you get all fundamentals down.
• When selling puts if you are very bullish consider "doubling down"; note this is higher risk. Use the credit from your put sale to buy shares or a cheap call. This can be roughly inversed with puts, except I wouldn't ever recommend shorting shares.
• Learn from your mistakes. You can’t go back in time and beating yourself up (to a point) is useless. Make a physical &/or mental note of it so you don’t do it again. If you don’t learn from it, then beat yourself up so you won’t do it again.
• If you have friends that like to trade, I find it helpful to discuss strategies and planned plays. I talk openly with my close friends about my current holdings and planned trades, it helps keep me accountable. If I get a wide-eyed look, I might be doing something excessively risky or stupid. I’ve over-leveraged myself in calls twice and I knew I shouldn’t have done it both times. When I tell my friends what I did and I’m embarrassed, it exemplifies the face that I shouldn’t have done it in the first place. You will also get ideas for new strategies or plays from them. It’s good to stay versatile and use multiple strategies when appropriate. Beware of group think/echo chambers.
• I recommend NEVER telling someone what to buy/sell and when. I’ll tell people MY plays or what I like and why, but I will not encourage them to emulate what I do. Depending on the audience, I’ll tell them my exact positions along with my exit and entrance strategy. With closer friends I’ll offer my thoughts on their trades (if asked). If my friend is doing something really risky (one of my friends does some scary stuff) I may ask them if they want my advice, and provide it, especially if they overlooked a risk/event. I will not encourage someone to execute/enter a trade since it has a high potential for hurt feelings or animosity all around.
• Don’t fall in love with a stock. Just because something made you money before and you have high confidence in it doesn’t mean it will keep performing. I joke that FDX betrayed me when it started dipping and losing me money. I was over-confident of its bounce-back and sold too many puts too quickly. I’m in several losing trades because of it. However, I will keep good stocks in my rostetracking list or try different strategies or re-enter trades when they change their behavior.
• As you start to both buy and sell options and get more experience in general, you'll start seeing the two sides to every trade. You will likely start adjusting your strategies or trying new trades out because of this. Things will likely click one day. Most/all the greeks and options concepts will become almost second nature. For me this was when I could build an Iron Condor from scratch, which was a watershed moment involving a good understanding of many strategies.
• Understand Liquidity and volume.
  • Trading in low volume, low open interest contracts results in wide bid/ask spreads and difficulty having your contracts filled. Look at all the data for a contract, not just the strike and price.
  • Monthly Expiration dates typically have better liquidity.
  • Multi-legged trades (Common examples are 2-legged vertical spreads or 4-legged iron condors) have more difficulty being filled, especially on bad brokers like Robin Hood. Having very liquid options for all legs is extremely helpful in obtaining timely and well-priced fills, which maximize your potential profits.
• Time in market vs timing the market:
  • It is extremely difficult to time the market perfectly. If you wait for the perfect opportunity forever, history has proven you will miss out on gains. Keeping all your money out of the market has proven to be ineffective. Now if there is something serious happening with a stock/the market (like say a new pandemic), don’t go all in. I recommend entering incrementally at dips. If the stock has huge upside potential it may never go down, so it might make sense to partially enter at the current price.
  • IMIO selling puts is a great strategy to get into a stock you like, or at least make money off it. I think buying stock in lots of 100 is usually for suckers. Selling an ATM or ITM put (assuming the math works out) on a stock you were going to buy and hold is ALMOST free money.
  • I recommend keeping some cash available regardless. If you have a very large account or expect a downturn, hedging with indexes like QQQ, SPY, or VIX or calls/puts may be wise.
• Every trade can't be a winner. You will take some losses, you must get used to it. I don’t like having a realized loss of 1K or more on any trade. However, this will happen, especially with larger accounts.
  • As long as you win more often and beat the S&P that year I consider it okay. I’m kind of aggressive, so I consider 20%+ annually good. 30%+ annually is great. 40%+ and I’m dancing. After trading options I am almost baffled by my old belief that 5% annual returns (mostly from dividend ETFs) was “good”. That’s nothing to me now since I’m willing to take risks. Note: While lots of people danced in 2020, realize that’s an insane Bull Run year and is atypical.
  • Adhere to your own risk tolerance and never over-extend yourself, especially with margin use. Don’t make huge gambles leaving you uncomfortable. Only gamble with money you are willing to lose.
  • My personal strategy is to make safer gains for the year and then enter slightly riskier strategies using those gains. I can be slightly-moderately more aggressive and compound my gains. For me I often sell puts to make money, then when I see a big opportunity I’ll sell a put and buy an OTM or moderately ITM call.
• Understand it’s not safe to try and get rich overnight. However, once you hit big “steps” things may start to snowball. You can enter more positions and take more risks if you choose to.
  • For me this when I hit 50k, then 100k. I was able to balance low and moderate risk positions to more significantly grow my account. I’ll even do a high risk thing now and again because my gains can absorb it (assuming I have them).
  • I can’t wait to get to 250K, then 500K. I know it’ll take quite a long time, but I am confident I’ll eventually be able to have 500K and (hopefully) 1M in my non-401k trading account with gains and additions from my job. I can only imagine how “dangerous” I will be with that kind of capital.
• If you missed "the next big thing" like AAPL, TSLA, or the time machine I’m building in my basement. Don't get upset, learn from it. Adapt and become a better trader for next time.
  • Figure out why a company was so promising, before they mooned. Determine how you would have traded differently in hindsight. Apply those lessons to the next company you believe has long term growth prospects.
  • For me that's putting in 1-2.5k towards shares and/or buying LEAPS on it. Depending on my bullishness I may buy “cheap”, fairly far OTM calls. The far OTM options are sort of lottery tickets. If I'm right the (relatively) low cost will have explosive profits; if I'm wrong, they didn't cost that much so it's a calculated loss I’m willing to accept. For more serious bets I’ll buy ITM LEAPS to run PMCCs on. I also like to buy 1-2K in my 401k for very long-term plays.
• The stock market hates uncertainty, it seems to crave the status quo. A shakeup can potential tank a stock, even if it's nothing. With shares you can wait it out, but this can be problematic for options. If you see volatile/uncertain times ahead (politics, disease, manufacturing, earnings, etc.), you might want to reduce your overall portfolio risks or hedge.

Profit Retention / Loss Mitigation

• If selling options, it is a viable strategy to close early after a large gain with many DTE left until expiry. See TT videos / strategies on this.
• Don't hold options through earnings unless you literally want to gamble. I like playing on earnings run ups, but that can be risky.
• If you hold options through earnings, IV crush will happen immediately afterwards, devaluing the option. However, if the option is profitable enough, IV crush won’t matter, which will still make money for a call buyer. A sold put sufficiently far OTM will benefit from IV crush, even if the stock dips after slightly bad or lukewarm earnings.
• Don't throw good money after bad. Don't gamble on a recovery if your assumption appears to be wrong or the market is flat out tanking. If you are wrong and still believe in the company, wait twice as long as your original plan (wait for your 2nd entry point vs 1st) before adding to your position.
• Consider using stop losses to lock-in profits on rides up or sometimes use them to prevent losses. Note, stops can be easily triggered in volatile options. Now when I'm up a lot on calls (especially around earnings or large momentum run-ups) I always set stop losses. I have been burned too many times. In December 2020 I didn't set a SL on several thousand dollars of FDX calls I was already up on and I "lost" ~$5K of unrealized gains. If you're up big, don't get too greedy.
• A possible strategy if a stock is on a tear and you have multiple options open: Close some positions (I prefer to do this incrementally if the stock has momentum), but leave 1+ open in case the stock goes into outer space/the floor. Next, set a stop loss with a little buffer below its current movement / range so it doesn't get hit unless the stock falls hard. Finally, watch the stock closely and if it keeps rising, keep moving the stop loss up in little bits incrementally. This will let you keep more profits on a hot streak, but give some protection and secure more gains. It will also help eliminate FOMO if a stock exceeds your expectations.
• Have rules when to roll out, down & out, or up & out. I like TT’s roll at break even or at 1x loss and to always roll for a credit (or for me a very minor cost). Obviously these rules need some monitoring. Know your stocks, the news, and technicals so you don’t jump the gun.
  • If you roll early for a credit and you’re right, it’s not the end of the world. You’ll just need to hold longer, which will obviously tie up capital. Sometimes it’s better to tie up some money (especially if you aren’t paying interest) than eating a huge loss.
  • Rolling too late can be worse though. I currently have a very underwater FDX put I sold that is over 2x loss, rolling it does almost nothing unless you want to pay a debit or extend it extremely far out.
• On huge options gains, I strongly you recommend taking profits by rolling up/down or incrementally sell your contracts at several different prices (this is why having multiple contracts is nice).
  • Rolling up involves selling your initial call, then using a fraction of your proceeds to buy a cheaper, further OTM call with the same expiry; puts are inverse this. When rolling up I like to ensure the new option’s cost is 15-40% of my realized gains. I’ll buy a more or less expensive new optoin based on my convication to the stock and predicted movements. You can also roll up and out to get a further expiry and strike.
  • This is monumentally important if you are playing with incredibly high rising stocks or during a short squeeze.
  • Sad story time: I completely screwed up when I forgot to roll up, twice, during the GME gamma/short squeeze. I didn’t take my own advice; I didn’t have a real exit or transition plan and I got emotional. It all happened so fast and I was at work; the insanity of the run up and subsequent gamma squeeze caught me off guard. I should’ve clocked out and thought through the situation for 15-30 minutes to form an impromptu plan, then executed trade(s). My moderate risk tolerance coupled with my desire to take profits took over. When the stock partially cratered after a run up, I sold to retain gains. In the heat of the moment I thought the squeeze was squoze and it was going to plummet into the ground and I wasn’t being rational.
    • On 1x 4K call I would’ve made an additional 15-25K if I rolled up to a cheaper contract with some of my profits.
    • I know I missed out on significantly more with a 2nd call I had. Depending when I rolled it, it would likely have been an additional 25-50k in profits.
  • I talked about learning from your mistakes above. This mistake is branded into my brain due to the massive gains I missed out on by not rolling up. I’m furious with myself as I write this 1 week after the GME gamma squeeze, I’m a planner and I didn’t plan. If anything I own is significantly up ever again, I’m rolling up (or at least setting a stop loss). If necessary, I’ll roll up a trade multiple times to keep extracting profits.
  • Learn from my mistake so you don’t miss out on gains too. I strongly recommend rolling up when you are up big on a call / roll down when you are up big on a put. This enables you to take profits, stay in the game, and keep extracting more gains.
• If you trade a lot of options, talk to your broker about a discount. I was getting the standard $.50/contract with E-Trade, but I traded over 300 contracts a quarter and was able to get the fee reduced by over $.10 by just asking. I am now doing more spreads and condors, so once my volume gets very high, I’ll ask again.
• If you have a broker that isn’t great and you want to switch, leverage your current trading fees to the new broker. Tell them you’ll move over $### thousand if they beat your current options trading fee per contract.

Trade Planning & Position Management Tips

• As you gain experience, start monitoring what kind of Delta, OTM, DTE, etc. you are most profitable with. Use it in your future trades. You'll often see the tasty trade 30-45DTE .3 Delta strategy for selling.
• Before entering a trade, look at rough technicals like resistances and supports to consider your relevant strikes as well as entry/exit points. Look at upcoming earnings & dividend dates as well as stock/market news.
• Consider staggering strikes and expirations for safety and diversity; it’s nice to avoid assignment on 3 puts at once because you used the same strike for all 3.
• Incrementally enter positions on large rises/falls. One of my favor strategies is to buy dips after over reactions. By doing this slowly in large price "steps" it helps combat FOMO and helps you avoid getting slaughtered.
  • This will also help you avoid "chasing a falling knife". It also ties into having a plan.
  • I set alerts at several predetermined prices and I REALLY try not to enter new trades unless I hit my preset points. It makes me less emotional and usually more effective.
• Don't buy far expiration options with poor liquidity for shorter term plays. I bought 1x GME 1-year+ LEAPS call before the 2021 short squeeze. That was stupid, I should've bought 2-3x 60-120 day calls to have better liquidity. I also paper-handed it and missed out on my lambo.
• If selling options, consider rolling (for a credit) to avoid assignment when it makes sense / meets your plan. Rolling closer to expiration can be a valid strategy to get theta on your side. On the flip side, if the stock moons or plummets it could've been better to roll before it got crazy deep ITM. See rolling “rules” above.
• Covered Calls:
  • If a stock has a large movement range, I think it can be worthwhile to wait to open a CC after the last one is closed/expires. I have been more successful waiting for another opportunity vs. opening one immediately on the Monday after the second the last one expires.
  • Consider selling covered calls at all time highs/peaks. If you sell a CC and the stock dips significantly, and you think it’s temporary, you can buy to close your CC for a quick profit, then reopen it later.
  • If you own Meme stocks, selling covered calls runs the risk of missing out on large gains. On these stocks I typically only sell them further OTM than I normally would or not at all. If I do sell CC on a Meme stock I try to ensure I have 25-100 other shares that won’t be called away.

-Advanced Beginner-
Spreads

• Spreads (with 2 legs) are neat because they manipulate how delta and theta act. It caps your gains and losses, but you can profit with less stock movement. Try several spreads on a P/L calculator to see for yourself.
• Spreads usually require margin trading.
• Spreads allow you to define max losses (assuming you close before expiration day) and use less capital.
  • Experienced traders will open many spreads at identical/similar strikes to heavily profit off movement. Spreads can make you/lose you a lot of money if you are right.
  • For example. I could make a $200 premium off a $500 risk trade, max loss would be $300. This is much more effective capital utilization than a naked or cash secured put, however it does not have the same downside protection or “wheel” potential as a sold put. Higher risk, higher reward.
• Vertical Debit spreads: I think of these like mini calls/puts. I personally don’t use them unless calls are outrageously expensive or the break even is absurdly high, but there’s nothing wrong with them. A call debit spread will lower your breakeven and overall cost vs just a call. You can do clever things like making a positive theta call spread if you’re creative. I like doing this since I hate losing money to theta.
• Vertical Credit spreads:
  • Very good theta strategy to define downside/upside risks.
  • A put credit spread is bullish and allows you to bet on upward movement with less capital and defined losses.
  • A call credit spread is a bearish strategy that allows you to bet on downward movement. These are very cool since they allow you to sell calls without selling naked calls, which can ruin you financially. I see selling these as better than buying puts since it’s so much easier to be profitable; to be redundant, Θ rocks.
  • https://www.schwab.com/resource-centeinsights/content/reducing-risk-with-credit-spread-options-strategy-0
• I repeat this on purpose: Don't EVER leave short spreads open on expiration day, close them. If you don't close, they better be VERY far from the strike on a non-volatile stock. In after hours a stock can jump/dip below your strike and be exercised without the other leg to protect you. This can lead to massive, life ruining losses. This is not an exaggeration, google this and be scared. It happened to a fair number of people with TSLA. Video explanation: https://www.youtube.com/watch?v=rtVFj9nRRDo&t=315s
• Short Straddle:

Trading Mechanics, Taxes, Market Manipulation

• Learn about wash sale rules. They suck and are very easy to activate with options. This will eliminate your ability to write off losses. Over trading can easily cause wash sales. https://www.investopedia.com/terms/w/washsalerule.asp
• Short attacks:
  • Learn to recognize these sketchy attacks by hedges/firms. They manipulate the market, it’s been documented countless times. A common one is rapid short selling, which pushes the price down.
  • Short Ladder attacks:
    • https://www.google.com/amp/s/seekingalpha.com/amp/instablog/11442671-gerald-klein/3096735-anatomy-of-a-short-attack
    • Some people say short ladder attacks don't exist. I've seen some very strange stock nosedives off low volume, so I tend to think they do.
  • If you plan well enough and the market doesn’t give up on the stock you may be able to use it as a great opportunity to buy the dip.
• Cramer explains how he intentionally manipulated the market when he ran a hedge fund years ago. Multiple links to the video are below since this video gets pulled often, Cramer / The street never wanted this to go public.
  • Reuters article: https://www.reuters.com/article/cramer-interview-idUKN2036292620070320
  • httpss://youtu.be/r07Gg92YjOI
  • https://youtu.be/VMuEis3byY4
  • https://youtu.be/JEzsfPmh894
  • https://youtu.be/QFfjX8dW-QQ
  • Due to this video I don’t fully trust Cramer. His show can give you stock ideas to buy (or inverse), but you never know where his true loyalties lie.
• Plan for taxes if you are up big. You may need to over withhold or contribute to taxes quarterly depending on your situation. https://www.irs.gov/taxtopics/tc306

-Intermediate / Advanced Strategies (work in progress)-
You’ll notice many of these strategies inverse one another.
Options Strategy Finder
This website is great for learning about new strategies, you’ll see many links to it below.
https://www.theoptionsguide.com/option-trading-strategies.aspx
Short Strangle / Straddle

• Both of these strategies profit from little price movement. I recommend using a P/L calculator to determine BE, profit, etc.
• A straddle sells (or buys) two options at the same expiry and strike.
• A strangle sells (or buys) two options at same expiry with different strikes.
• Both these strategies involved selling a Call and a Put for a credit. Straddle uses ATM legs, strangle uses OTM legs.
• Limited max profits and unlimited risk. Due to the unlimited risk, I am not a fan. However, many people like these a lot.
• https://www.theoptionsguide.com/short-strangle.aspx
• https://www.theoptionsguide.com/short-straddle.aspx

Iron Condor and Iron Butterflies

• These strategies profit from neutral or mostly neutral stock movement. They receive a credit to open and benefit from theta decay. If your stock is range bound, these may be a good choice.
• These are both 4 "legged" trades, so you will have 4 trading fees to enter or exit the trade. A lower cost or zero cost broker shines here. However, “bad” free brokers will give you poor fills, which may not be worth the discount.
• Condors and butterflies have "wings" which are your purchased puts and calls. The wider the wing the higher the max profit/risk. The condor body can be riskier and skinny with a narrow high profit range or wider for a much greater chance of success with lower payout.
• An iron condor is built by combining a put credit spread and a call credit spread with the same expiry.
• An iron condor can be thought of as a modified short strangle with limited risk, and therefore a bit less profit. I prefer defined limited risk.
• The butterfly is similar except instead of a plateau it has a sharp peak. My personal mental note is that a condor looks more like a strangle with wings, while a butterfly looks like a straddle with wings.
• Pay attention to earnings dates when you open these, I have forgotten to check before and it led to bad trades.
• https://www.theoptionsguide.com/iron-condor.aspx
• https://www.theoptionsguide.com/iron-butterfly.aspx

Long Condor (Debit Call Condor)

• The debit version of an Iron Condor. You expect the price to stay inside your defined range. This strategy profits from neutral or mostly neutral stock movement. I’ve never tried this, Iron Condors make more sense to me.
• Limited risk / limited reward.
• https://www.theoptionsguide.com/condor.aspx

Short Condor (Credit Call Condor)

• Inverse of an Iron Condor. You expect the price to go OUTSIDE your defined range. These are useful when you expect significant price movement. Credit to open.
• Limited risk / limited reward.
• Can be harder to set up. I want to try these, haven’t yet.
• https://www.theoptionsguide.com/short-condor.aspx

Reverse Iron Condor

• Inverse of an Iron Condor. You expect the price to go OUTSIDE your defined range. These are useful when you expect significant price movement. Debit to open.
• Limited risk / limited reward.
• https://www.theoptionsguide.com/reverse-iron-condor.aspx

LEAPs

• LEAP Options are options that are long term with many DTE, often over a year until expiration. LEAP calls are great for long term growth plays (downtrends with LEAP puts) or simply when you really like a company and can't afford 100 shares. LEAPs (or any "longer term" option) enables you to sell a PMCC or PMCP (below)

PMCC / PMCP

• PMCC or PMCP are poor man's covered call (or poor man's covered puts). They are diagonal options often used with purchased LEAPs. You sell a shorter DTE call/put with a further OTM strike than your purchased call/put. For PMCC/PMCPs it is often recommended to recoup your extrinsic value as soon as possible, some recommend with your first call CC or put sale, to ensure you are positive if the option is assigned early. These have a lot of moving parts and strategies. If you buy a barely ITM call/put and sell a nearby strike call/put you run the risk of the purchased option getting "blown by" on large stock movement and ending up with a very negative losing trade. Keeping your purchased LEAP deeper ITM should protect you. Check your initial PMCC using an options calculation to make sure you don't screw up.
• I'm currently tinkering with these myself. So far I like .7-.9 delta call LEAPS with 30-45 DTE calls on my CC. The goal is to hold the LEAP long term, potentially until expiration, and constantly sell calls/puts on it that expire worthless. Typically the call/put is rolled up and out or down and out if it's going to be assigned, unless you don't want your LEAP anymore.
• Some people look at these many sold CC or puts as profits, I look at them as lowering my cost basis until it's zero (or even negative). I have a page in my notebook I write each CC on my NIO LEAP (I Meme stock sometimes). I find it satisfying to slowly see the cost of the original option disappear. When I originally wrote this I had ~2 years left on it and it's 9-10% paid for; that doesn't even count the actual gains the LEAP has.
• TT states this is considered an IV play, which I partially agree with. You want to buy these during low IV times since an IV drop will hurt your LEAP value. I look at them more as a way to sell calls/puts on a high IV company with a lot of price movement and potential upside/downside.

Advanced Orders

• Guide to several order types: https://us.etrade.com/knowledge/events/webinars/order-types-from-basic-to-advanced-07162019
• One Triggers Other (OTO):
  • Good brokers will allow you to set these up, some will require a desktop to do it. This lets you link one action to another. In programming think of it like an if-then. You’ll tie a buy/sell to another buy/sell
  • Setting trailing stops on options is very chaotic since their price movement can be drastic due to volatility. I prefer to set my trailing stop to a stock.
  • What I like to do is set a trailing stop on a stock (or just link it to a stock price drop) and have it sell 1 share I own. Then it immediately executes a market order to sell my call. I’ve had good luck doing this with incredibly volatile plays were stop losses aren’t effective. I’ll often have an order saved and ready saved for when a strong run up starts. When my price alerts start blowing up my phone, I’ll immediately hit execute to turn it on.

​
Disclaimer:
I’m not a financial adviser, I'm actually an engineer. I’m not telling you to invest in a specific stock/option or even use a specific strategy. I’ve outlined and more extensively elaborated on what I personally like. You should test several strategies and find what works best for you.
I'm just a guy who trades (mainly options) part-time for financial gain and fun. I don't claim to be some investing savant.

In this post we are going to go through an in-depth analysis of Google, we are going to take a look at their fundamental value, their DCF, do a little technical analysis and set some price targets for the near future and for the long term
~Very Long Post~ [Don't Read Unless You Like DD]
Hello everyone! Let’s start by talking a little about Alphabet, they are one of the biggest companies in the world that generates most of their revenues and income from online advertising services provided through their platforms like Google Search & YT while also expanding into multiple other businesses like cloud services and autonomous driving technology through their venture Waymo.
The company was founded during the dot com bubble in 1998 and has more than 130K employees, with the company performing quite well in the past year gaining more than 30%.
I believe Google will continue to grow as their cloud platform will remain one of the biggest in the world, while also continuing to innovate and develop other emerging businesses that might turn out successful in the long-term, while their main competition is Baidu & Bing for the search engine, but their market share is still completely dominant, as they also compete with social networks & online retailers for advertising placements.
So, guys, let’s go a little through the 4th quarter & yearly results for Google.
Google smashed earnings expectations for the 4th quarter with a beat of more than $6 on EPS and $4B in total revenues.
The company reported a revenue of almost $57B in the 4th quarter while generating revenues of over $182B in 2020, representing a 12% increase over 2019 as they operating income also grew to over $40B for the first time despite a very slow start to the year through the first 2 quarters as their ad revenues were crushed due to the lack of travel & other leisure industries as those are some of the biggest advertiser income streams for them.
The company sustained a significant growth rate in the past year in their 2 major income segments, with their services business which grew by 11%, and the cloud services which also more than doubled their revenues, but the cloud services is still losing money as they keep investing into expanding their services to compete with the other major cloud players like Amazon, Microsoft & Alibaba.
The company has also started this quarter to report their google cloud results separately to give a more detailed view on how the company is performing, as we can now see how the company has managed to increase their revenues streams and how big the YT Ads revenues have become for them as those increased by 30% in the last year. Meanwhile the revenues from Google Search also rose by 6% and the Cloud Segment spiked by 46%, as they also have a big backlog in this segment.
So overall, the company has managed to increase their revenues in constant currency by 14% in the past year while also improving their operating margin by 2%.
Google has managed to keep growing and improving their business operation through major capital expenditures that have accounted for over $22B in 2020. I believe the big spending on capex is really needed, as the competition in the cloud segment in really heating up, so I like companies that keep reinvesting into themselves, as they have also spent over $27B on R&D in 2020, as they keep investing into most of their products and adding new ones in the pipeline.
Also, for the projections of the DCF it’s important to NOTE that they had over $13B in Depreciation & Amortization in 2020, with this number growing between 15-30% in the past 2 years so I while use a 15% increase for the DCF to be safe. The other big number that is important is their overall capex spending, which has gone down in the past 3 years, but as things might ramp up again as they mentioned in their earnings call, I will continue to grow this spending by 2.5%/year expecting things to normalize after the company went for a safer approach in 2020.
Alphabet also managed to increase their earnings before interest & tax or EBIT which stood at over $41B while also buying back 1.6% of their total shares in the past year, as they continued buyback programs in the 4th quarter of 2020, buying back over 4.7M shares in just the last 3 months, thus continuing to reward their shareholders even more.
There are a couple of negative outlooks for the company though, as their effective tax rate has increased in the past years, and this might continue to go higher depending on future tax reforms so I will take into account some small raises in the tax rate.
The next problem is the regulatory pressure which can be another bump in the road for Google, but I mostly expect things to drag along and may eventually end with something similar to what happened to Microsoft. Even If they somehow end up breaking their businesses, I think we can see the Cloud business trading at insane P/Es which would increase the actual value of the resulting stocks, while the search engine and YT will remain very powerful even without the contracts with OEMs, which would result in better margins and less operating expenses, as most people would still turn to Google for their searches and videos.
The final problem for Google is the privacy issues, but it seems they have found a way to substitute the traditional cookie technology with a new software interface called Federated Learning of Cohorts.
This technology seems to have at least 95% of the same power of conversion per dollar compared to cookies which would be a huge boost to their privacy issues concerns and will help them maintain their dominance in the online ad’s world.
But this isn’t the only technology Alphabet is trying to develop, they still have other proposals in works as well, which might come in even better, so we will have to wait and see what they go with.
Meanwhile, Google also offered some guidance for 2021 as they expect easy comps in the first half of 2021, while they are planning to ramp up the pace of investments this year.
They also expect to keep investing in cloud segment as their backlog which stands at $30B is mostly attributable to the cloud segment, as Alphabet will continue to focus on long-term growth that will benefit them in the long run as operating results & margins go.
For the price targets, I have made some predictions based on the growth rate of the company, the latest plans announced by them and used some estimates and expectations. So, keep in mind this are only projections and are calculated by myself, this is not an investment advice and you should do your own research and so on…
So, let’s start with the discounted free cash flow PROJECTIONS to see what the current valuation of the company is.
I used their total revenues projections that we will discuss later in the long-term projection, and the net income for 2020, to which I added back the Depreciation & Amortization costs they had in 2020 and got to an EBITDA of almost $55B
For the next years I used a small increase in EBIT margin which I think they can achieve pretty easy and also applied a 10% decrease in their net working capital.
I increased the capex spending and their D&A as I previously mentioned, so, for an 8% discount rate, which is pretty much the average SP500 return in the past decades and is what I like to use as a discount rate, given the current low interest rates, we get almost $190B Discounted Free Cash Flows by 2025.
Now there are 2 methods of doing the valuation, either the perpetuity method or the EBITDA multiple method, but for both of them we do have to subtract or add the net assets or debt of the company, which in this case stand at a net $200B in assets. I personally think a use of the average is better suited for most companies, though most of the companies trade largely on the EBITDA approach.
If we do use the growth approach, we can see that GOOG is slightly overvalued right now, as this implies a loss of about 5%.
On the other hand, a good EBITDA multiple for the company I think is about 20, as the stock currently trades over this multiple, but for safety reasons, I think 20 is pretty reasonable.
And given this multiple & approach we get a valuation of over $2700, or a 32% undervaluation of the company.
But as I said, I think a use of the average is best, so, my current price target for Alphabet in 2021 is $2326, implying a 13.3% return from the last price.
Guys, next let’s move on to a longer-term valuation of the company based on the growth projections I have for Google.
For my PROJECTIONS I actually just used their full year results and implied different growth rates for each revenue stream.
I think we can continue to see 50% growth rate in the Cloud segment for 2021 as businesses keep needing cloud services more & more, and then implying a gradual slowing of their growth rate.
For the Google Services (which include Search, YT & other revenue streams) I implied a 12% growth, just above last years, as YT keeps booming and the leisure industry advertising will slowly come back. But, for reasonable purposes I also implied a gradual slowdown of this trend by 1% each year.
I believe these growth implications are pretty reasonable giving the high market share in the search segment and the demand for cloud services platforms.
The 2 other revenues streams which are Other Bets & Hedging I pretty much left unchanged as they don’t really have that big implications on the final number, but I did add a small amount of growth in both of them.
For their cost of sales, I started from the current ones and maintained them for 3 of their segments, while for the Google Cloud cost of sales I implied a gradual improvement of about 14%/year. So, I am implying they reach profitability by 2024 and reach somewhat of an AWS type of profitability by 2025.
Guys, if we add all of these up, it means for 2025 we would get over $334B in revenues and $237B in expenses, resulting in a gross profit of almost $97B.
I also maintained the same capex as in the DCF while for the interest income & other incomes which stood at almost $7B this year I implied small annual growths, thus leading us to a $75.4B in earnings before tax.
I also slightly increased their 16.3% effective tax rate to about 17.5% by 2025 in order to somewhat account for possible tax changes in the future and also accounted for some share buyback programs of about 1% each year.
So, for the $62B in 2025 revenues after tax and accounting for 653M shares, that would mean a $95.25 earnings/share, meaning the stock is trading at almost 22 times forward price to earnings for 2025.
Guys, for my personal projections I like to use Forward/PE valuations & multiples, so, with the current projected PE and depending on what PE you assume for the stock between 25 and 40, the stock can trade between $2381 and $3810.
After all these estimates what are my price targets?
HERE are my actual price targets… I think the 2025 bear case price we can see Google trade at is $2619 which would imply a return of 27.5%, while my base case and my pretty safe assumption is that Google will trade at 3095$/share by the end of 2025, implying a 50% return on the current price.
My most bullish case though, would see the company trading at $3572, which would imply a return of almost 74%.
So yeah guys, these are my Overall price TARGETS for 2025, my bear case is an average of the 25 & 30 PE ratio, while the normal case is the average between the 30 and 35 PE’s with the most bullish case valuing the company between a PE of 35-40.
I think these are pretty reasonable targets, as the cloud services will continue to boom in the next decades, while they will also benefit from an increased reach for their search engine and booming YT platform as more people are getting internet access each day, and we shouldn’t forget that they might have even more great products in the pipeline with interesting names like Waymo.
Alphabet also has very good financials, with almost $320B in assets vs just $97B in total liabilities, which can be easily paid by the current $137B in cash, cash equivalents & marketable securities.
I also like to take a look at what the estimates are from the other analysts, and in this case, we can see an average EPS estimate by 2025 of $117, which is way higher than my $95 EPS estimates.
The analysts also expect over $370B in total revenues on average, which is also more than $35B ahead of where my targets are pointing, so, I think it’s safe to say I have been pretty conservative & reasonable with the growth expectations for the company.
You are probably wondering, what do I expect in the next couple of days, weeks and months for GOOGLE?
Let’s start by taking a look at this CHART, we can see that Google was trading in an increasingly tighter wedge formation since the September lows. Right now, after smashing the earnings report the company has re-entered overbought territory with an RSI of over 70, which we haven’t seen since the big September sell-off. This breakout from this wedge formation came on the back of massive volumes for the stock, so I believe we can see the overbought conditions push the stock lower in the near-term before eventually going back even higher as I expect with my $2326 prediction for the end of the year.
I also think the $1920 to $1935 range can act as future support after it was a good resistance point for the stock.
But, let’s also take a quick look at what 44 analysts on Wall Street are saying. They are mostly very bullish on the stock with an average price target of $2171 and a high price target of $2610. So, guys, I think the analyst still have some catching up to do with upgrades to the stock after the recent earnings report.
Are you asking yourself, what would I do?
I believe it still has plenty of room to grow, so I would start building a position if the stock drops under $2000 and especially buy more if it goes to the previous resistance levels between $1920 and $1935
I also believe that the big % of their shares held by institutions, with over 72% of the float being held by big funds like Vanguard & Blackrock does significantly reduce the sell-off possibilities and increase the support levels power.
So, these are my projections and my expectations for the company, I think Google has a terrific future ahead, with their market share of engine search worldwide crushing the competition and the hole digital ad spending worldwide forecasted to continue to grow and take share of the total ad spending worldwide.
I believe Google will remain one of the best companies in the world while also being a good catch-up play to the other big tech names, as Google has underperformed compared to most of the other big names with the exception of Facebook.
Thank you everyone for reading🙏 Hope you enjoyed the content! Be sure to leave a comment down below with your opinion on the stock market! Have a great day and see you next time!

TL;DR Robinhood bad but DTCC and trade settlement process to blame for the fuckary that took place this week.
Posting this article here as it seems like information worth digesting prior to the Robinhood mass exodus. Not advocating one way or the other, simply interested in the truth. To those of you that actually know... is this true? Article below:
A little-known intermediary in the process of buying and selling equities forced Robinhood and other brokers to restrict trading in several securities on Thursday, including GameStop , AMC Entertainment , BlackBerry , and Nokia . All have been swept up in the WallStreetBets-fueled short-squeeze phenomenon and have seen intense volatility in recent days.
Theories abounded online about Robinhood—a mobile-first, low-cost brokerage founded on the idea of expanding access to trading to more people—being in league with the “men in suits” at hedge funds on the losing side of those trades. Politicians on Twitter from across the political spectrum condemned the broker’s move. But Robinhood’s provided reason that it needed to restrict trading in those stocks until it could increase its collateral with the Depository Trust & Clearing Corporation, or DTCC, holds water.
Explaining that requires getting into a bit of market plumbing and elements of the trading process that usually don’t get much attention.
When an investor orders their broker—Robinhood or E*Trade, for example—to buy or sell a security, the broker accepts the trade and sends it to an exchange like the New York Stock Exchange or the Nasdaq. The exchange then matches buyers with sellers, and from the investor’s perspective, the transaction is as good as done. But there are still some mechanics that need to be worked out behind the scenes.
Investors may have noticed that the cash proceeds from selling a stock aren’t immediately available to withdraw from their account after a trade is completed—that usually takes a business day or two. Back in the day, that time was spent physically exchanging stock certificates between brokers. Today’s trading volumes make that an impossible task.
Today, after a stock exchange completes a trade, it sends the information to the DTCC, which keeps track of brokers’ books. The DTCC is a clearing house, an important part of the financial system. Clearing houses not only process and complete trades in an efficient manner, they help limit systemic risk. The clearing house promises to make good on all trades that happen regardless of what happens to an individual broker.
The DTCC is responsible for transferring ownership of the stock from the seller’s broker to the buyer’s broker—and vice versa for the cash involved. Rather than doing that after every single one of the trillions of dollars of trades each day, the DTCC waits until it can net several trades into “one position per security, per client, per settlement date,” according to its website. The settlement date is the day when the cash and securities involved in a trade actually change hands.
At the settlement date, which falls two days after the investor places their trade, the seller’s broker must deliver the stock being sold and the buyer’s broker must provide the cash. The DTCC guarantees that the transfer will happen and eliminates the risk of a single broker going under rippling across the market.
In exchange, the DTCC collects a fee per trade and requires some collateral from the brokers to ensure they have the assets to complete the transaction. It’s like putting a refundable deposit on a purchase that reduces the middleman’s risk while the package is in the mail, with full payment due once it arrives. The DTCC’s collateral requirements for brokers are calculated by a much more complex formula, based on the specific shares’ notional value, volatility, and other variables.
For a relatively risk-free transaction—in liquid, less volatile stocks like, say, Apple (AAPL) or Microsoft (MSFT)—that collateral requirement could be around the order of 10% of the transaction value. For a stock like GameStop this week, the DTCC’s formula might spit out a collateral requirement several times higher than that because it takes on greater risk. That’s because the DTCC could be on the hook to deliver an asset that’s worth a materially different amount on the settlement date than the trade date if one of the brokers involved can’t complete the transaction.
When traders are using margin to buy, the broker needs to come up with the cash on its own. And when there’s a large imbalance between a broker’s buy and sell orders for a given security, it doesn’t net out as cleanly at the end of the day, meaning more collateral is required.
All of those factors applied to Robinhood and Gamestop on Thursday. The stock traded in a wide range from $112 to $438 on heavy volume, its users were predominantly placing buy orders for the shares, and many were using margin.
And those are the reasons the DTCC asked brokers for more collateral for each such trade. The clearing house didn’t want to be caught with brokers not having the funds they need to settle. Therefore, Robinhood and others restricted buying on these highflying stocks until it could come up with enough cash to pay collateral. Robinhood allowed users to sell the stocks because the selling broker puts up the shares as collateral, not cash.
Since then, the brokerage has drawn down its credit lines at several banks and brought in $1 billion from existing investors to fund additional collateral requirements. On Friday, Robinhood reopened buying of Gamestop and other recently popular stocks.
The DTCC says it processes trillions of dollars of transactions a day, including equities, bonds, mutual funds, and derivatives. It said that collateral requirements for all of its broker clients were $33.5 billion on Thursday, up from $26 billion the day before.
All credit goes to Nicholas Jasinski with Barron’s
Again, posting here to get the wonderful feedback that is always so quickly given.
Edit 1: here is the link to the article

Okay, to make it clear: Yes, WSB won't let me post, I wrote this whole thing up in emojis and now I'm salty because I can't just copy paste it, and yes, this is kind of just more GME DD.
However, the thesis of my post is literally "we should open up to everyone, so anyone can learn the basic facts of investing, because then people can make more educated decisions", which is distinctly not WSB style apparently. So let me elaborate on why I think popularity is good, not bad, and how that makes other stocks squeezeable.

Fact 1: Many people don't know the basic facts

(How "many" is defined is unclear, but given the amount of complaining about questions on this, and the number of people who have exactly 0 investing experience, I think this is self-evident).
People have been calling GME a bubble, or a pump and dump, since 1000% ago. Now, while it is a bubble in the sense that it's going to go up and then crash, it is not a pump and dump, but an entirely legal short squeeze.
I'm going to explain the basics, so feel free to skip ahead if you know them already, but here's the long and short of it. GME has had well over 100% short:float ratio for quite some time. We noticed, and due to general hype around Ryan Cohen (who successfully turned around Chewy, a pet food company) among other things, the stock price started going up.
However, that was not the short squeeze. That was just good ol' crowd behavior - as the stock goes up, people start buying, and when people start buying, the stock goes up. Normally this is pretty well controlled. However, around $40/share, people noticed something - Citron Research tweeted that GME was going to crash back to $20/share, and then, within minutes, a massive sell went through in the market. The price began to drop.
From WSB's perspective, this was two things: One, blatant and unfair market manipulation, and two, a perfect opportunity to "buy the dip". After all, if they kept buying, the price would go back up, Citron would be shown wrong, and they could squeeze out the bad guys. And, enough people agreed (or at least saw the price go back up) that the price did go back up. And then some.
Now here's what people got wrong, and still get wrong: The price started skyrocketing because of a squeeze, yes, but a gamma squeeze, not a short squeeze. The short explanation is basically, when calls expire in the money, you get stocks from whoever wrote the contract (who has to buy them if they haven't already), and when stocks are up, more calls expire in the money. More stocks have to be bought = stocks are up = more stocks have to be bought. Technically this doesn't all happen on Friday when the calls expire, but rather the effect gets diffused throughout the option chain, and the measurement of how fast it's going up is gamma, which is why it's called a gamma squeeze.
I don't know how many times I've seen people mislabel the various spikes as a short squeeze, or even ignore that aspect entirely and just call it mob mentality. The numbers on the shorts are mostly public knowledge, and yet, even in this sub you get tons of people asking "has the short squeeze happened yet?" or even asserting that it has.
Furthermore, the basic squeeze tactics - exercising options at expiration, not buying then selling, stop-loss hunts, etc are similarly, horribly underrepresented.

Fact 2: The more the merrier

Now, here's a fact that everyone knows - the more people get in on a short squeeze, the higher it goes. As more people buy in and hold, the price skyrockets higher with less opportunity to exit short positions, so those holding short positions are forced further into the red. Notably this is great for everyone in on the squeeze, even those who get in relatively late - as long as it's not during the squeeze itself, which is driven by short sellers buying rather than normal buying, everyone makes more money.

Conclusion: Spread the info

This is why I'm so salty WSB went private. It's absolutely the worst possible move. With the momentum the movement in general has, we could easily make more and more people aware of these basic facts. If people watched stocks anything like they watched sports, even half as much, there'd be triple the number of people invested. At 1/2 the subs, that'd still be quadruple the current sub count - even by a month old estimate WSB had 6% of the stock, so even being conservative on every part of this back-of-the-envelope calculation this could easily be 20%. If you really believe in reddit swaying the market, imagine quadrupling that sway - even in less optimal conditions, is it crazy to believe it'd reach a modest percentage of GME's success?

Actual Recommendations

Here's the thing - I'm not that smart. But you can easily verify that a lot of the "GME is a one-time opportunity" people are full of it. A common claim is that there's not that much hedge fund investment in shorted stocks so you're just fighting other individuals, or that there's not enough shorting to squeeze, but that's easily checked: take a look at this list of shorted stocks, and see, for example, LGND. At 40% hedge fund ownership it's similar to gamestop, and at 65% shorted float you can bet some of that spike is going to hit the funds. It's also got an incredibly high put-to-call ratio, which has similar effects. Similarly DDS has 91% float shorting, and still 17% hedge fund ownership.
TL;DR don't crack down too hard on newbies, get DD to the front page, and there could very well be another GME.

Do your research before adding cryptos to your portfolio.
Billionaire investor Paul Tudor Jones recently named bitcoin as his top bet for a hedge against post-pandemic inflation. Average investors likely don't know much about bitcoin – or any cryptocurrency for that matter – other than what they see in the news. Bitcoin, the first cryptocurrency, is a form of digital currency invented in 2009 by an anonymous founder using the pseudonym Satoshi Nakamoto. Cryptos aren't managed by a bank or public agency. Instead, transactions of cryptocurrency tokens are recorded on a public blockchain – comprised of digital information stored on a database. Their future remains uncertain. "Tokens or coins used in a decentralized network are not the same as shares in a company," says Michael Anderson, co-founder of Framework Ventures. "As such, growing and proliferating these networks requires new models for success, and we're still in the first inning of proving them out." Here are seven things to understand before investing in cryptocurrencies.
1.Cryptos are risky.
Investing in cryptocurrencies is very speculative. "Like the majority of startup companies, most crypto assets will fail and therefore become worthless," Anderson says. "Non-professional investors should only invest an amount they're willing to lose." Despite stories of investors making millions, investing at an inopportune time can result in rapid and extreme losses. As late as May 2017, one unit of bitcoin (BTC) traded for roughly $1,500. At its peak in December 2017, bitcoin got as high as $19,800. Recently, BTC has ranged in price from $6,600 on April 15 to $10,000 on May 7. Although the chance of striking it rich by investing in cryptos is enticing, this market is extremely volatile and there's a real possibility of great losses.

1. The uses for cryptos vary.

Cryptocurrency is known for funding illegal transactions. Yet legal businesses also accept cryptos for transactions. Cryptos offer speedy, low-cost money transfers. This makes using them for international money transfers popular. In fact, a $99 million litecoin (LTC) transaction took only two and a half minutes and cost the sender less than one dollar in transaction fees. Cryptos are free from authorities and can't be frozen. That's because only an owner with a private key to the wallet has access to the asset. Investors can also speculate in listed cryptocurrencies, betting on which ones will succeed and which ones will fail.
3.Cryptocurrency investors use many strategies.
Simple speculation is one approach to cryptocurrency investing. But just like investing in the stock market, there are specific strategies for cryptocurrency investors. Marcus Swanepoel, CEO at Luno, a global cryptocurrency company, says you can day-trade cryptos, buy and hold and evaluate the assets with fundamental and technical analysis. Despite the difficulty of predicting lows and highs in digital currency, Swanepoel claims there are methods of market analysis that can inform investors when to buy and sell. Strategies for evaluating cryptocurrency include concepts such as the supply, demand and future uses of the asset. For example, bitcoin's supply is fixed at 21 million units, which implies that demand can drive prices due to the fixed supply. "Global economic events can exert a powerful influence on cryptocurrency prices," Swanepoel adds.
4.The IRS doesn't consider cryptos to be currency.
In the U.S., the Internal Revenue Service considers cryptocurrency as property. The tax rules that govern property investing also apply to cryptocurrency investing. "This ruling imposes extensive record-keeping requirements and the IRS is making tax enforcement of cryptocurrencies a high priority with steep penalties," says Robert Elwood, partner at Practus, a Philadelphia law firm. "So transactions in taxable accounts should be undertaken only when the record-keeping burden is worthwhile." If enacted, the Virtual Currency Tax Fairness Act of 2020 could encourage more cryptocurrency use because taxes would only be levied on the digital currency if the gain of a transaction is greater than $200. This would enable individuals to easily pay for smaller purchases with digital currency. That said, cryptos held in retirement accounts are protected from tax, as are other assets owned within these accounts.
5.Cryptos may fail.
As for any market, the future of cryptocurrency is not guaranteed. "I believe that cryptocurrencies will implode and no longer exist in any meaningful sense in a few years and that the entire cryptocurrency market is a bubble," says Robert R. Johnson, professor of finance at Creighton University. Johnson thinks the cryptocurrency market is driven by the "greater fool theory," as investors rely on new buyers to bid up the price. If Johnson is wrong and the cryptocurrency market doesn't fail, there still remains the question of which digital currencies will survive. With thousands of entrants in the market, and new offerings emerging, not all will last. Investors who want to speculate in this market should probably stick with the most well-known names, such as bitcoin, ethereum and litecoin. It's also wise to learn a bit about the market for each before investing.
6.Cryptos can vanish.
Blockchain is popular with a variety of financial institutions and other users. Since cryptocurrencies are virtual and lack a central storehouse, it's possible for an account balance to be wiped out. For example, a computer crash without a backup could destroy a stash of cryptocurrency. If a user loses the private key to their wallet, the cryptocurrency they own is unrecoverable. Scammers can also hijack someone's mobile account by impersonating an account holder. Thieves contact the carrier and request the user's SIM card to be transferred to a new device. This gives scammers access to the cryptocurrency accounts. It's incumbent upon investors to keep track of their private key and use a wallet from a well established firm. Professionals also suggest backing up your cryptocurrency private keys and using strong passwords.
7.Cryptocurrency prices can be driven by emotion.
Asset class bubbles have occurred over and over again throughout history. From the Dutch tulip bulb mania in the 1600s to the dot-com bubble in 2000, it's not uncommon for popular assets to be bid up by enthusiastic investors. FOMO, or fear of missing out, can cause investors to jump on the cryptocurrency investing trend at the wrong time. Calculating the intrinsic value of cryptocurrency may be more difficult than for a publicly traded company, but learning about the asset and how it performs might help prevent you from investing at a peak. By incorporating industry knowledge and developing an understanding of the digital currency market, you will become a more educated cryptocurrency investor. Unfortunately, the fact remains that, unlike buying tangible assets with a long history, bitcoin is simply an entry in an online log with 11 years of history.
TL;dr:
Cryptos are risky.
The uses for cryptos vary.
Cryptocurrency investors use many strategies.
The IRS doesn't consider cryptos to be currency.
Cryptos may fail.
Cryptos can vanish.
Cryptocurrency prices can be driven by emotion
source

In this post we are going to go through an in-depth analysis of Google, we are going to take a look at their fundamental value, their Discounted Free Cash Flow, do a little technical analysis and set some price targets for the near future and for the long term
~Very Long Post~ [Don't Read Unless You Like DD]
Hello everyone! Let’s start by talking a little about Alphabet , they are one of the biggest companies in the world that generates most of their revenues and income from online advertising services provided through their platforms like Google Search & YouTube while also expanding into multiple other businesses like cloud services and autonomous driving technology through their venture Waymo.
The company was founded in 1998 and has more than 130K employees, with the company performing quite well in the past year gaining more than 30%.
I believe Google will continue to grow as their cloud platform will remain one of the biggest in the world, while also continuing to innovate and develop other emerging businesses that might turn out successful in the long-term, while their main competition is Baidu & Bing for the search engine, but their market share is still completely dominant, as they also compete with social networks & online retailers for advertising placements.
So, guys, let’s go a little through the 4th quarter & yearly results for Google.
Google smashed earnings expectations for the 4th quarter with a beat of more than $6 on EPS and $4B in total revenues.🚀
The company reported a revenue of almost $57B in the 4th quarter while generating revenues of over $182B in 2020, representing a 12% increase over 2019 as they operating income also grew to over $40B for the first time despite a very slow start to the year through the first 2 quarters as their ad revenues were crushed due to the lack of travel & other leisure industries as those are some of the biggest advertiser income streams for them.
The company sustained a significant growth rate in the past year in their 2 major income segments, with their services business which grew by 11%, and the cloud services which also more than doubled their revenues, but the cloud services is still losing money as they keep investing into expanding their services to compete with the other major cloud players like Amazon, Microsoft & Alibaba.
The company has also started this quarter to report their google cloud results separately to give a more detailed view on how the company is performing, as we can now see how the company has managed to increase their revenues streams and how big the YouTube Ads revenues have become for them as those increased by 30% in the last year. Meanwhile the revenues from Google Search also rose by 6% and the Cloud Segment spiked by 46%, as they also have a big backlog in this segment.
So overall, the company has managed to increase their revenues in constant currency by 14% in the past year while also improving their operating margin by 2%.
Google has managed to keep growing and improving their business operation through major capital expenditures that have accounted for over $22B in 2020. I believe the big spending on capex is really needed, as the competition in the cloud segment in really heating up, so I like companies that keep reinvesting into themselves, as they have also spent over $27B on R&D in 2020, as they keep investing into most of their products and adding new ones in the pipeline.
Also, for the projections of the discounted free cash flow it’s important to NOTE that they had over $13B in Depreciation & Amortization in 2020, with this number growing between 15-30% in the past 2 years so I while use a 15% increase for the projections to be safe. The other big number that is important is their overall capex spending, which has gone down in the past 3 years, but as things might ramp up again as they mentioned in their earnings call, I will continue to grow this spending by 2.5%/year expecting things to normalize after the company went for a safer approach in 2020.
Alphabet also managed to increase their earnings before interest & tax or EBIT which stood at over $41B while also buying back 1.6% of their total shares in the past year, as they continued buyback programs in the 4th quarter of 2020, buying back over 4.7M shares in just the last 3 months, thus continuing to reward their shareholders even more
There are a couple of negative outlooks for the company though, as their effective tax rate has increased in the past years, and this might continue to go higher depending on future tax reforms so I will take into account some small raises in the tax rate.
The next problem is the regulatory pressure which can be another bump in the road for Google, but I mostly expect things to drag along and may eventually end with something similar to what happened to Microsoft. Even If they somehow end up breaking their businesses, I think we can see the Cloud business trading at insane P/Es which would increase the actual value of the resulting stocks, while the search engine and YouTube will remain very powerful even without the contracts with OEMs, which would result in better margins and less operating expenses, as most people would still turn to Google for their searches and videos.
The final problem for Google is the privacy issues, but it seems they have found a way to substitute the traditional cookie technology with a new software interface called Federated Learning of cohorts.
This technology seems to have at least 95% of the same power of conversion per dollar compared to cookies which would be a huge boost to their privacy issues concerns and will help them maintain their dominance in the online ad’s world
But this isn’t the only technology Alphabet is trying to develop, they still have other proposals in works as well, which might come in even better, so we will have to wait and see what they go with.
Meanwhile, Google also offered some guidance for 2021 as they expect easy comps in the first half of 2021, while they are planning to ramp up the pace of investments this year.
They also expect to keep investing in cloud segment as their backlog which stands at $30B is mostly attributable to the cloud segment, as Alphabet will continue to focus on long-term growth that will benefit them in the long run as operating results & margins go.
For the price targets, I have made some predictions based on the growth rate of the company, the latest plans announced by them and used some estimates and expectations. So, keep in mind this are only projections and are calculated by myself, this is not an investment advice and you should do your own research and so on…
So, let’s start with the discounted free cash flow PROJECTIONS to see what the current valuation of the company is.
I used their total revenues projections that we will discuss later in the long-term projection, and the net income for 2020, to which I added back the Depreciation & Amortization costs they had in 2020 and got to an EBITDA of almost $55B
For the next years I used a small increase in EBIT margin which I think they can achieve pretty easy and also applied a 10% decrease in their net working capital.
I increased the capex spending and their D&A as I previously mentioned, so, for an 8% discount rate, which is pretty much the average SP500 return in the past decades and is what I like to use as a discount rate, given the current low interest rates, we get almost $190B Discounted Free Cash Flows by 2025.
Now there are 2 methods of doing the valuation, either the perpetuity method or the EBITDA multiple method, but for both of them we do have to subtract or add the net assets or debt of the company, which in this case stand at a net $200B in assets. I personally think a use of the average is better suited for most companies, though most of the companies trade largely on the EBITDA approach.
If we do use the growth approach, we can see that GOOG is slightly overvalued right now, as this implies a loss of about 5%.
On the other hand, a good EBITDA multiple for the company I think is about 20, as the stock currently trades over this multiple, but for safety reasons, I think 20 is pretty reasonable.
And given this multiple & approach we get a valuation of over $2700, or a 32% undervaluation of the company.
But as I said, I think a use of the average is best, so, my current price target for Alphabet in 2021 is $2326, implying a 13.3% return from the last price 🚀
Guys, next let’s move on to a longer-term valuation of the company based on the growth projections I have for Google.
For my PROJECTIONS I actually just used their full year results and implied different growth rates for each revenue stream.
I think we can continue to see 50% growth rate in the Cloud segment for 2021 as businesses keep needing cloud services more & more, and then implying a gradual slowing of their growth rate
For the Google Services (which include Search, YouTube & other revenue streams) I implied a 12% growth, just above last years, as YouTube keeps booming and the leisure industry advertising will slowly come back. But, for reasonable purposes I also implied a gradual slowdown of this trend by 1% each year
I believe these growth implications are pretty reasonable giving the high market share in the search segment and the demand for cloud services platforms.
The 2 other revenues streams which are Other Bets & Hedging I pretty much left unchanged as they don’t really have that big implications on the final number, but I did add a small amount of growth in both of them.
For their cost of sales, I started from the current ones and maintained them for 3 of their segments, while for the Google Cloud cost of sales I implied a gradual improvement of about 14%/year. So, I am implying they reach profitability by 2024 and reach somewhat of an AWS type of profitability by 2025.
Guys, if we add all of these up, it means for 2025 we would get over $334B in revenues and $237B in expenses, resulting in a gross profit of almost $97B.
I also maintained the same capex as in the cash flow projections while for the interest income & other incomes which stood at almost $7B this year I implied small annual growths, thus leading us to a $75.4B in earnings before tax.
I also slightly increased their 16.3% effective tax rate to about 17.5% by 2025 in order to somewhat account for possible tax changes in the future and also accounted for some share buyback programs of about 1% each year.
So, for the $62B in 2025 revenues after tax and accounting for 653M shares, that would mean a $95.25 earnings/share, meaning the stock is trading at almost 22 times forward price to earnings for 2025.
Guys, for my personal projections I like to use Forward/PE valuations & multiples, so, with the current projected PE and depending on what PE you assume for the stock between 25 and 40, the stock can trade between $2381 and $3810
After all these estimates what are my price targets?
HERE are my actual price targets… I think the 2025 bear case price we can see Google trade at is $2619 which would imply a return of 27.5%, while my base case and my pretty safe assumption is that Google will trade at 3095$/share by the end of 2025, implying a 50% return on the current price.
My most bullish case though, would see the company trading at $3572, which would imply a return of almost 74%. 🚀
So yeah guys, these are my Overall price TARGETS for 2025, my bear case is an average of the 25 & 30 PE ratio, while the normal case is the average between the 30 and 35 PE’s with the most bullish case valuing the company between a PE of 35-40.
I think these are pretty reasonable targets, as the cloud services will continue to boom in the next decades, while they will also benefit from an increased reach for their search engine and booming YouTube platform as more people are getting internet access each day, and we shouldn’t forget that they might have even more great products in the pipeline with interesting names like Waymo.
Alphabet also has very good financials, with almost $320B in assets vs just $97B in total liabilities, which can be easily paid by the current $137B in cash, cash equivalents & marketable securities
I also like to take a look at what the estimates are from the other analysts, and in this case, we can see an average EPS estimate by 2025 of $117, which is way higher than my $95 EPS estimates.
The analysts also expect over $370B in total revenues on average, which is also more than $35B ahead of where my targets are pointing, so, I think it’s safe to say I have been pretty conservative & reasonable with the growth expectations for the company.
You are probably wondering, what do I expect in the next couple of days, weeks and months for GOOGLE?
Let’s start by taking a look at this CHART, we can see that Google was trading in an increasingly tighter wedge formation since the September lows. Right now, after smashing the earnings report the company has re-entered overbought territory with an RSI of over 70, which we haven’t seen since the big September sell-off. This breakout from this wedge formation came on the back of massive volumes for the stock, so I believe we can see the overbought conditions push the stock lower in the near-term before eventually going back even higher as I expect with my $2326 prediction for the end of the year.
I also think the $1920 to $1935 range can act as future support after it was a good resistance point for the stock
But, let’s also take a quick look at what 44 analysts on Wall Street are saying. They are mostly very bullish on the stock with an average price target of $2171 and a high price target of $2610. So, guys, I think the analyst still have some catching up to do with upgrades to the stock after the recent earnings report.
Are you asking yourself, what would I do?
I believe it still has plenty of room to grow, so I would start building a position if the stock drops under $2000 and especially buy more if it goes to the previous resistance levels between $1920 and $1935
I also believe that the big % of their shares held by institutions, with over 72% of the float being held by big funds like Vanguard & Blackrock does significantly reduce the sell-off possibilities and increase the support levels power.
So, these are my projections and my expectations for the company, I think Google has a terrific future ahead, with their market share of engine search worldwide crushing the competition and the hole digital ad spending worldwide forecasted to continue to grow and take share of the total ad spending worldwide.
I believe Google will remain one of the best companies in the world while also being a good catch-up play to the other big tech names, as Google has underperformed compared to most of the other big names with the exception of Facebook.
Thank you everyone for reading! Hope you enjoyed the content! Be sure to leave a comment down below with your opinion on the stock market! Have a great day and see you next time!

As a few people have asked I thought I’d do a really, really basic guide on Futures.
This info is not guaranteed to be correct, I've quickly penned this down whilst crying into a pillow that I missed that AAVE run.
Futures: A way to boost your profits and completely ruin your account balance.

Why do I use Futures?

To give me full account exposure on different assets at the same time
So I can keep my portfolio in a ‘blue-chip- like ETH but still throwing money at rand-o DeFi things
So I don’t need to keep my balance on exchange. (Thanks Nanex/XHV for screwing me over)
Also lets me make bigger positions than I have in actual funds.

What are Futures contracts?

A futures contract is an agreement to buy or sell a commodity, currency, or another instrument at a predetermined price at a specified time in the future.
Basically, if I buy a futures contract someone is telling me that they will deliver that thing, at the price specified in the contract, at the expiration date of the contract.
E.g ETH-0326 is currently trading at $1723 at time of writing. At expiration, the seller has to give me 1ETH, and I’ll give them $1723 now.
That means that particular asset will stop trading on the 26th of March.
Now it’s a lot more complicated than that and Futures are usually ‘cash-settled’ which means the exchange will immediately sell the asset and give you the difference, rather than actually posting you your ETH.
Because contracts with expiration are too confusing for our smooth brains to comprehend, they invented *Perpetual* futures contracts (E.g ETH-PERP).
These don’t expire and pay or charge funding, depending on how the market is and what side of the trade you’re on.
Futures were designed as a way to hedge, however we can use them to leverage our positions.

Liquidation

You never want this to happen. Ever. It can’t happen so don’t even plan for it to happen.
Set a stop loss for every position.
As your position is leveraged, the price can fall (or rise if you’re short) to a specific price, once it hits that price the exchange sells your open position (and other positions if you’re on Cross margin - don’t use cross margin) to pay what you owe.
This can mean you can lose your account in a few juicy candles.
You’ll notice the price is different (sometimes slightly, sometimes wildly) for futures over the asset (called “spot price” - futures can be a bit choppier as the Market Makers try and stop you out or liquidate you. This is how they make money, by taking liquidity.
Set a stop loss for every position.

Funding

Perpetual contracts charge funding, usually every hour although sometimes every 4/6.
The funding percentage is charged on the size of your position, not your margin (account balance).
So if you use $100 to borrow $1000, you pay funding on $1000.
If it’s positive (it usually is) longs pay the shorts. If its negative - happy days shorts pay the longs.
This means if you’re playing an unpopular trade you can skim money from funding.
(E.g everyone and their mum is long Bitcoin. I can go short and lap up that tasty funding.)

Long/Short

Futures means you can now not only buy an asset, but you can also sell the contract to someone else, promising you’ll give them the asset at that price. If the price goes down, they still have to pay the price stated so you pocket the difference.
It sounds complicated but basically, you can bet on the price going down.
It’s buying in reverse, as you don’t have to have the asset.
Set a stop loss for every position.

Where can I trade Futures?

Binance Futures, BitMex, FTX - although I’m pretty sure loads of them are banned in the US.
Crypto derivatives are also banned in the UK, however a few exchanges will let you if you’re a professional. I’m a professional degenerate, and they seemed happy enough with my box tick.

Tips

Set a stop loss for every position.
Calculate how much this is gonna cost you if it hits. Don’t let emotion take over.
It’s very easy to lose your whole account in seconds.
Do your own research, I’m not responsible for what you do with your money.
If you do want to use FTX (This is what I use, I think the interface is fantastic) feel free to use my referral for a 5% discount on fees:
https://ftx.com/#a=OriginalGravity
Here’s a link to our Boy CZ’s Binance (10% discount on fees)
https://www.binance.com/en/futures/ref/60028013
​
Any questions, give me a shout and I'll try and help.
I'm not an expert. I have no idea what I'm doing.
​
Edit: Positons -
DEFI-PERP | GRP-PERP | BADGER|PERP
Capital is sat 50/50 ETH and FTT

In this post we are going to go through an in-depth analysis of Google, we are going to take a look at their fundamental value, their DCF, do a little technical analysis and set some price targets for the near future and for the long term
~Very Long Post~ [Don't Read Unless You Like DD]
Hello everyone! Let’s start by talking a little about Alphabet, they are one of the biggest companies in the world that generates most of their revenues and income from online advertising services provided through their platforms like Google Search & YouTube while also expanding into multiple other businesses like cloud services and autonomous driving technology through their venture Waymo.
The company was founded during the dot com bubble in 1998 and has more than 130K employees, with the company performing quite well in the past year gaining more than 30%.
I believe Google will continue to grow as their cloud platform will remain one of the biggest in the world, while also continuing to innovate and develop other emerging businesses that might turn out successful in the long-term, while their main competition is Baidu & Bing for the search engine, but their market share is still completely dominant, as they also compete with social networks & online retailers for advertising placements.
So, guys, let’s go a little through the 4th quarter & yearly results for Google.
Google smashed earnings expectations for the 4th quarter with a beat of more than $6 on EPS and $4B in total revenues.
The company reported a revenue of almost $57B in the 4th quarter while generating revenues of over $182B in 2020, representing a 12% increase over 2019 as they operating income also grew to over $40B for the first time despite a very slow start to the year through the first 2 quarters as their ad revenues were crushed due to the lack of travel & other leisure industries as those are some of the biggest advertiser income streams for them.
The company sustained a significant growth rate in the past year in their 2 major income segments, with their services business which grew by 11%, and the cloud services which also more than doubled their revenues, but the cloud services is still losing money as they keep investing into expanding their services to compete with the other major cloud players like Amazon, Microsoft & Alibaba.
The company has also started this quarter to report their google cloud results separately to give a more detailed view on how the company is performing, as we can now see how the company has managed to increase their revenues streams and how big the YouTube Ads revenues have become for them as those increased by 30% in the last year. Meanwhile the revenues from Google Search also rose by 6% and the Cloud Segment spiked by 46%, as they also have a big backlog in this segment.
So overall, the company has managed to increase their revenues in constant currency by 14% in the past year while also improving their operating margin by 2%.
Google has managed to keep growing and improving their business operation through major capital expenditures that have accounted for over $22B in 2020. I believe the big spending on capex is really needed, as the competition in the cloud segment in really heating up, so I like companies that keep reinvesting into themselves, as they have also spent over $27B on R&D in 2020, as they keep investing into most of their products and adding new ones in the pipeline.
Also, for the projections of the DCF it’s important to NOTE that they had over $13B in Depreciation & Amortization in 2020, with this number growing between 15-30% in the past 2 years so I while use a 15% increase for the DCF to be safe. The other big number that is important is their overall capex spending, which has gone down in the past 3 years, but as things might ramp up again as they mentioned in their earnings call, I will continue to grow this spending by 2.5%/year expecting things to normalize after the company went for a safer approach in 2020.
Alphabet also managed to increase their earnings before interest & tax or EBIT which stood at over $41B while also buying back 1.6% of their total shares in the past year, as they continued buyback programs in the 4th quarter of 2020, buying back over 4.7M shares in just the last 3 months, thus continuing to reward their shareholders even more.
There are a couple of negative outlooks for the company though, as their effective tax rate has increased in the past years, and this might continue to go higher depending on future tax reforms so I will take into account some small raises in the tax rate.
The next problem is the regulatory pressure which can be another bump in the road for Google, but I mostly expect things to drag along and may eventually end with something similar to what happened to Microsoft. Even If they somehow end up breaking their businesses, I think we can see the Cloud business trading at insane P/Es which would increase the actual value of the resulting stocks, while the search engine and YouTube will remain very powerful even without the contracts with OEMs, which would result in better margins and less operating expenses, as most people would still turn to Google for their searches and videos.
The final problem for Google is the privacy issues, but it seems they have found a way to substitute the traditional cookie technology with a new software interface called Federated Learning of Cohorts or FLOC.
This technology seems to have at least 95% of the same power of conversion per dollar compared to cookies which would be a huge boost to their privacy issues concerns and will help them maintain their dominance in the online ad’s world.
But this isn’t the only technology Alphabet is trying to develop, they still have other proposals in works as well, which might come in even better, so we will have to wait and see what they go with.
Meanwhile, Google also offered some guidance for 2021 as they expect easy comps in the first half of 2021, while they are planning to ramp up the pace of investments this year.
They also expect to keep investing in cloud segment as their backlog which stands at $30B is mostly attributable to the cloud segment, as Alphabet will continue to focus on long-term growth that will benefit them in the long run as operating results & margins go.
For the price targets, I have made some predictions based on the growth rate of the company, the latest plans announced by them and used some estimates and expectations. So, keep in mind this are only projections and are calculated by myself, this is not an investment advice and you should do your own research and so on…
So, let’s start with the discounted free cash flow PROJECTIONS to see what the current valuation of the company is.
I used their total revenues projections that we will discuss later in the long-term projection, and the net income for 2020, to which I added back the Depreciation & Amortization costs they had in 2020 and got to an EBITDA of almost $55B
For the next years I used a small increase in EBIT margin which I think they can achieve pretty easy and also applied a 10% decrease in their net working capital.
I increased the capex spending and their D&A as I previously mentioned, so, for an 8% discount rate, which is pretty much the average SP500 return in the past decades and is what I like to use as a discount rate, given the current low interest rates, we get almost $190B Discounted Free Cash Flows by 2025.
Now there are 2 methods of doing the valuation, either the perpetuity method or the EBITDA multiple method, but for both of them we do have to subtract or add the net assets or debt of the company, which in this case stand at a net $200B in assets. I personally think a use of the average is better suited for most companies, though most of the companies trade largely on the EBITDA approach.
If we do use the growth approach, we can see that GOOG is slightly overvalued right now, as this implies a loss of about 6%.
On the other hand, a good EBITDA multiple for the company I think is about 20, as the stock currently trades over this multiple, but for safety reasons, I think 20 is pretty reasonable.
And given this multiple & approach we get a valuation of over $2700, meaning an almost 30% undervaluation of the company.
But as I said, I think a use of the average is best, so, my current price target for Alphabet in 2021 is $2326, implying a 12.6% return from the last price.
Guys, next let’s move on to a longer-term valuation of the company based on the growth projections I have for Google.
For my PROJECTIONS I actually just used their full year results and implied different growth rates for each revenue stream.
I think we can continue to see 50% growth rate in the Cloud segment for 2021 as businesses keep needing cloud services more & more, and then implying a gradual slowing of their growth rate.
For the Google Services (which include Search, YouTube & other revenue streams) I implied a 12% growth, just above last years, as YouTube keeps booming and the leisure industry advertising will slowly come back. But, for reasonable purposes I also implied a gradual slowdown of this trend by 1% each year.
I believe these growth implications are pretty reasonable giving the high market share in the search segment and the demand for cloud services platforms.
The 2 other revenues streams which are Other Bets & Hedging I pretty much left unchanged as they don’t really have that big implications on the final number, but I did add a small amount of growth in both of them.
For their cost of sales, I started from the current ones and maintained them for 3 of their segments, while for the Google Cloud cost of sales I implied a gradual improvement of about 14%/year. So, I am implying they reach profitability by 2024 and reach somewhat of an AWS type of profitability by 2025.
Guys, if we add all of these up, it means for 2025 we would get over $334B in revenues and $237B in expenses, resulting in a gross profit of almost $97B.
I also maintained the same capex as in the DCF while for the interest income & other incomes which stood at almost $7B this year I implied small annual growths, thus leading us to a $75.4B in earnings before tax.
I also slightly increased their 16.3% effective tax rate to about 17.5% by 2025 in order to somewhat account for possible tax changes in the future and also accounted for some share buyback programs of about 1% each year.
So, for the $62B in 2025 revenues after tax and accounting for 653M shares, that would mean a $95.25 earnings/share, meaning the stock is trading at almost 22 times forward price to earnings for 2025.
Guys, for my personal projections I like to use Forward/PE valuations & multiples, so, with the current projected PE and depending on what PE you assume for the stock between 25 and 40, the stock can trade between $2381 and $3810.
After all these estimates what are my price targets?
HERE are my actual price targets… I think the 2025 bear case price we can see Google trade at is $2619 which would imply a return of 26.7%, while my base case and my pretty safe assumption is that Google will trade at 3095$/share by the end of 2025, implying an almost 50% return on the current price.
My most bullish case though, would see the company trading at $3572, which would imply a return of over 72%.
So yeah guys, these are my Overall price TARGETS for 2025, my bear case is an average of the 25 & 30 PE ratio, while the normal case is the average between the 30 and 35 PE’s with the most bullish case valuing the company between a PE of 35-40.
And also, HERE is the full spreadsheet that I have projected for Alphabet by 2025, if you do have another opinion or a suggestion please leave a comment down below, I think I have been conservative in most of my projections, but feel free to give your opinion.
I think these are pretty reasonable targets, as the cloud services will continue to boom in the next decades, while they will also benefit from an increased reach for their search engine and booming YouTube platform as more people are getting internet access each day, and we shouldn’t forget that they might have even more great products in the pipeline with interesting names like Waymo.
Alphabet also has very good financials, with almost $320B in assets vs just $97B in total liabilities, which can be easily paid by the current $137B in cash, cash equivalents & marketable securities.
I also like to take a look at what the estimates are from the other analysts, and in this case, we can see an average EPS estimate by 2025 of $117, which is way higher than my $95 EPS estimates.
The analysts also expect over $370B in total revenues on average, which is also more than $35B ahead of where my targets are pointing, so, I think it’s safe to say I have been pretty conservative & reasonable with the growth expectations for the company.
You are probably wondering, what do I expect in the next couple of days, weeks and months for GOOGLE?
Let’s start by taking a look at this CHART, we can see that Google was trading in an increasingly tighter wedge formation since the September lows. Right now, after smashing the earnings report the company has re-entered overbought territory with an RSI of over 70, which we haven’t seen since the big September sell-off. This breakout from this wedge formation came on the back of massive volumes for the stock, so I believe we can see the overbought conditions push the stock lower in the near-term before eventually going back even higher as I expect with my $2326 prediction for the end of the year.
I also think the $1920 to $1935 range can act as future support after it was a good resistance point for the stock.
But, let’s also take a quick look at what 44 analysts on Wall Street are saying. They are mostly very bullish on the stock with an average price target of $2171 and a high price target of $2610. So, guys, I think the analyst still have some catching up to do with upgrades to the stock after the recent earnings report.
Are you asking yourself, what would I do? Well, I own GOOG stock (2% of my portfolio) and I believe it still has plenty of room to grow, so I would start building a position if the stock drops under $2000 and especially buy more if it goes to the previous resistance levels between $1920 and $1935.
I also believe that the big % of their shares held by institutions, with over 72% of the float being held by big funds like Vanguard & Blackrock does significantly reduce the sell-off possibilities and increase the support levels power.
So, these are my projections and my expectations for the company, I think Google has a terrific future ahead, with their market share of engine search worldwide crushing the competition and the hole digital ad spending worldwide forecasted to continue to grow and take share of the total ad spending worldwide.
I believe Google will remain one of the best companies in the world while also being a good catch-up play to the other big tech names, as Google has underperformed compared to most of the other big names with the exception of Facebook.
Thank you everyone for reading🙏 Hope you enjoyed the content! Be sure to leave a comment down below with your opinion on the stock market! Have a great day and see you next time!

In this post we are going to go through an in-depth analysis of Google, we are going to take a look at their fundamental value, their DCF, do a little technical analysis and set some price targets for the near future and for the long term
~Very Long Post~ [Don't Read Unless You Like DD]
Hello everyone! Let’s start by talking a little about Alphabet, they are one of the biggest companies in the world that generates most of their revenues and income from online advertising services provided through their platforms like Google Search & YT while also expanding into multiple other businesses like cloud services and autonomous driving technology through their venture Waymo.
The company was founded during the dot com bubble in 1998 and has more than 130K employees, with the company performing quite well in the past year gaining more than 30%.
I believe Google will continue to grow as their cloud platform will remain one of the biggest in the world, while also continuing to innovate and develop other emerging businesses that might turn out successful in the long-term, while their main competition is Baidu & Bing for the search engine, but their market share is still completely dominant, as they also compete with social networks & online retailers for advertising placements.
So, guys, let’s go a little through the 4th quarter & yearly results for Google.
Google smashed earnings expectations for the 4th quarter with a beat of more than $6 on EPS and $4B in total revenues.
The company reported a revenue of almost $57B in the 4th quarter while generating revenues of over $182B in 2020, representing a 12% increase over 2019 as they operating income also grew to over $40B for the first time despite a very slow start to the year through the first 2 quarters as their ad revenues were crushed due to the lack of travel & other leisure industries as those are some of the biggest advertiser income streams for them.
The company sustained a significant growth rate in the past year in their 2 major income segments, with their services business which grew by 11%, and the cloud services which also more than doubled their revenues, but the cloud services is still losing money as they keep investing into expanding their services to compete with the other major cloud players like Amazon, Microsoft & Alibaba.
The company has also started this quarter to report their google cloud results separately to give a more detailed view on how the company is performing, as we can now see how the company has managed to increase their revenues streams and how big the YT Ads revenues have become for them as those increased by 30% in the last year. Meanwhile the revenues from Google Search also rose by 6% and the Cloud Segment spiked by 46%, as they also have a big backlog in this segment.
So overall, the company has managed to increase their revenues in constant currency by 14% in the past year while also improving their operating margin by 2%.
Google has managed to keep growing and improving their business operation through major capital expenditures that have accounted for over $22B in 2020. I believe the big spending on capex is really needed, as the competition in the cloud segment in really heating up, so I like companies that keep reinvesting into themselves, as they have also spent over $27B on R&D in 2020, as they keep investing into most of their products and adding new ones in the pipeline.
Also, for the projections of the DCF it’s important to NOTE that they had over $13B in Depreciation & Amortization in 2020, with this number growing between 15-30% in the past 2 years so I while use a 15% increase for the DCF to be safe. The other big number that is important is their overall capex spending, which has gone down in the past 3 years, but as things might ramp up again as they mentioned in their earnings call, I will continue to grow this spending by 2.5%/year expecting things to normalize after the company went for a safer approach in 2020.
Alphabet also managed to increase their earnings before interest & tax or EBIT which stood at over $41B while also buying back 1.6% of their total shares in the past year, as they continued buyback programs in the 4th quarter of 2020, buying back over 4.7M shares in just the last 3 months, thus continuing to reward their shareholders even more.
There are a couple of negative outlooks for the company though, as their effective tax rate has increased in the past years, and this might continue to go higher depending on future tax reforms so I will take into account some small raises in the tax rate.
The next problem is the regulatory pressure which can be another bump in the road for Google, but I mostly expect things to drag along and may eventually end with something similar to what happened to Microsoft. Even If they somehow end up breaking their businesses, I think we can see the Cloud business trading at insane P/Es which would increase the actual value of the resulting stocks, while the search engine and YT will remain very powerful even without the contracts with OEMs, which would result in better margins and less operating expenses, as most people would still turn to Google for their searches and videos.
The final problem for Google is the privacy issues, but it seems they have found a way to substitute the traditional cookie technology with a new software interface called Federated Learning of Cohorts or FLOC.
This technology seems to have at least 95% of the same power of conversion per dollar compared to cookies which would be a huge boost to their privacy issues concerns and will help them maintain their dominance in the online ad’s world.
But this isn’t the only technology Alphabet is trying to develop, they still have other proposals in works as well, which might come in even better, so we will have to wait and see what they go with.
Meanwhile, Google also offered some guidance for 2021 as they expect easy comps in the first half of 2021, while they are planning to ramp up the pace of investments this year.
They also expect to keep investing in cloud segment as their backlog which stands at $30B is mostly attributable to the cloud segment, as Alphabet will continue to focus on long-term growth that will benefit them in the long run as operating results & margins go.
For the price targets, I have made some predictions based on the growth rate of the company, the latest plans announced by them and used some estimates and expectations. So, keep in mind this are only projections and are calculated by myself, this is not an investment advice and you should do your own research and so on…
So, let’s start with the discounted free cash flow PROJECTIONS to see what the current valuation of the company is.
I used their total revenues projections that we will discuss later in the long-term projection, and the net income for 2020, to which I added back the Depreciation & Amortization costs they had in 2020 and got to an EBITDA of almost $55B
For the next years I used a small increase in EBIT margin which I think they can achieve pretty easy and also applied a 10% decrease in their net working capital.
I increased the capex spending and their D&A as I previously mentioned, so, for an 8% discount rate, which is pretty much the average SP500 return in the past decades and is what I like to use as a discount rate, given the current low interest rates, we get almost $190B Discounted Free Cash Flows by 2025.
Now there are 2 methods of doing the valuation, either the perpetuity method or the EBITDA multiple method, but for both of them we do have to subtract or add the net assets or debt of the company, which in this case stand at a net $200B in assets. I personally think a use of the average is better suited for most companies, though most of the companies trade largely on the EBITDA approach.
If we do use the growth approach, we can see that GOOG is slightly overvalued right now, as this implies a loss of about 6%.
On the other hand, a good EBITDA multiple for the company I think is about 20, as the stock currently trades over this multiple, but for safety reasons, I think 20 is pretty reasonable.
And given this multiple & approach we get a valuation of over $2700, meaning an almost 30% undervaluation of the company.
But as I said, I think a use of the average is best, so, my current price target for Alphabet in 2021 is $2326, implying a 12.6% return from the last price.
Guys, next let’s move on to a longer-term valuation of the company based on the growth projections I have for Google.
For my PROJECTIONS I actually just used their full year results and implied different growth rates for each revenue stream.
I think we can continue to see 50% growth rate in the Cloud segment for 2021 as businesses keep needing cloud services more & more, and then implying a gradual slowing of their growth rate.
For the Google Services (which include Search, YT & other revenue streams) I implied a 12% growth, just above last years, as YT keeps booming and the leisure industry advertising will slowly come back. But, for reasonable purposes I also implied a gradual slowdown of this trend by 1% each year.
I believe these growth implications are pretty reasonable giving the high market share in the search segment and the demand for cloud services platforms.
The 2 other revenues streams which are Other Bets & Hedging I pretty much left unchanged as they don’t really have that big implications on the final number, but I did add a small amount of growth in both of them.
For their cost of sales, I started from the current ones and maintained them for 3 of their segments, while for the Google Cloud cost of sales I implied a gradual improvement of about 14%/year. So, I am implying they reach profitability by 2024 and reach somewhat of an AWS type of profitability by 2025.
Guys, if we add all of these up, it means for 2025 we would get over $334B in revenues and $237B in expenses, resulting in a gross profit of almost $97B.
I also maintained the same capex as in the DCF while for the interest income & other incomes which stood at almost $7B this year I implied small annual growths, thus leading us to a $75.4B in earnings before tax.
I also slightly increased their 16.3% effective tax rate to about 17.5% by 2025 in order to somewhat account for possible tax changes in the future and also accounted for some share buyback programs of about 1% each year.
So, for the $62B in 2025 revenues after tax and accounting for 653M shares, that would mean a $95.25 earnings/share, meaning the stock is trading at almost 22 times forward price to earnings for 2025.
Guys, for my personal projections I like to use Forward/PE valuations & multiples, so, with the current projected PE and depending on what PE you assume for the stock between 25 and 40, the stock can trade between $2381 and $3810.
After all these estimates what are my price targets?
HERE are my actual price targets… I think the 2025 bear case price we can see Google trade at is $2619 which would imply a return of 26.7%, while my base case and my pretty safe assumption is that Google will trade at 3095$/share by the end of 2025, implying an almost 50% return on the current price.
My most bullish case though, would see the company trading at $3572, which would imply a return of over 72%.
So yeah guys, these are my Overall price TARGETS for 2025, my bear case is an average of the 25 & 30 PE ratio, while the normal case is the average between the 30 and 35 PE’s with the most bullish case valuing the company between a PE of 35-40.
And also, HERE is the full spreadsheet that I have projected for Alphabet by 2025, if you do have another opinion or a suggestion please leave a comment down below, I think I have been conservative in most of my projections, but feel free to give your opinion.
I think these are pretty reasonable targets, as the cloud services will continue to boom in the next decades, while they will also benefit from an increased reach for their search engine and booming YT platform as more people are getting internet access each day, and we shouldn’t forget that they might have even more great products in the pipeline with interesting names like Waymo.
Alphabet also has very good financials, with almost $320B in assets vs just $97B in total liabilities, which can be easily paid by the current $137B in cash, cash equivalents & marketable securities.
I also like to take a look at what the estimates are from the other analysts, and in this case, we can see an average EPS estimate by 2025 of $117, which is way higher than my $95 EPS estimates.
The analysts also expect over $370B in total revenues on average, which is also more than $35B ahead of where my targets are pointing, so, I think it’s safe to say I have been pretty conservative & reasonable with the growth expectations for the company.
You are probably wondering, what do I expect in the next couple of days, weeks and months for GOOGLE?
Let’s start by taking a look at this CHART, we can see that Google was trading in an increasingly tighter wedge formation since the September lows. Right now, after smashing the earnings report the company has re-entered overbought territory with an RSI of over 70, which we haven’t seen since the big September sell-off. This breakout from this wedge formation came on the back of massive volumes for the stock, so I believe we can see the overbought conditions push the stock lower in the near-term before eventually going back even higher as I expect with my $2326 prediction for the end of the year.
I also think the $1920 to $1935 range can act as future support after it was a good resistance point for the stock.
But, let’s also take a quick look at what 44 analysts on Wall Street are saying. They are mostly very bullish on the stock with an average price target of $2171 and a high price target of $2610. So, guys, I think the analyst still have some catching up to do with upgrades to the stock after the recent earnings report.
Are you asking yourself, what would I do? Well, I own GOOG stock (2% of my portfolio) and I believe it still has plenty of room to grow, so I would start building a position if the stock drops under $2000 and especially buy more if it goes to the previous resistance levels between $1920 and $1935.
I also believe that the big % of their shares held by institutions, with over 72% of the float being held by big funds like Vanguard & Blackrock does significantly reduce the sell-off possibilities and increase the support levels power.
So, these are my projections and my expectations for the company, I think Google has a terrific future ahead, with their market share of engine search worldwide crushing the competition and the hole digital ad spending worldwide forecasted to continue to grow and take share of the total ad spending worldwide.
I believe Google will remain one of the best companies in the world while also being a good catch-up play to the other big tech names, as Google has underperformed compared to most of the other big names with the exception of Facebook.
Thank you everyone for reading! Hope you enjoyed the content! Be sure to leave a comment down below with your opinion on the stock market!
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Hello investors,
So far, we have talked about the following trading plans for executing options trades. I'll quickly go over them below to ensure that everyone is on the same page. I want to be sure we are aware of the reasons why we are buying certain types of options and the mechanics of realizing profits from them.
Options Trading Part I (Which Options to Buy) - 11/16/2020
https://www.reddit.com/Midasinvestors/comments/jvivvt/options_trading_part_i_which_options_to_buy/
This post basically explains the concept of getting the maximum convexity on your return profile, which is a fancy way of saying getting the best returns for a unit of risk you are taking.
For instance, if you are betting a $100 on a company, you might as well do it using options because you could potentially get higher returns for a little more, if not the same, amount of risk you are taking.
You want to play a game where you will receive $300 for every $100 you bet, 3:1 payout ratio, not $100 for every $100 you bet, 1:1 payout ratio, which is the case for owning shares in a company.
Name of the game, purchase options with the best risk/reward scenarios.
(To determine the payout profile, almost all brokers offer the calculations to show what happens to the value of the option if stock price goes down by 30% or up by 30%.)
Options Trading Part II (When to Exit or Rollover Positions) - 11/28/2020
https://www.reddit.com/Midasinvestors/comments/k2yluoptions_trading_part_ii_when_to_exit_or_rollove
The next post explains when to close out your positions. Again, it goes off the idea of understanding your risk/reward for every position that you have and either existing your positions or rollover them based on how the situation has changed.
For example, if you purchased an OTM call option expiring in 12 months and 4 months later, you're already in-the-money with 4x your initial investment in unrealized capital gains.
At this point, your payout profile will look much worse than when you first entered the trade, meaning for every $1 upward movement in the stock price, you will gain $10 and a $1 downward movement in the stock price will decrease the value of your options by roughly $10, resulting in a 1:1 payout profile, which is almost the same as owning shares in a company as we discussed above.
Therefore, you need to answer the following question:

• Are you bullish or bearish on the stock in the next 8 months (the remaining life of the option)? Will there be external market forces that could hurt the stock's performance?

If the answer is bullish, then I would say either keep the options or rollover into more OTM option.
You would keep the options if you think the stock will still appreciate in the next 8 months but the upward movement won't be anywhere explosive, so you're essentially owning shares in the company at this point.
You would rollover into more OTM options at the same expiration date when you're still feeling very bullish on the company in the next 8 months and think that the stock could rise another 30% so you want the best payout profile. This also limits your risk by cutting down the weight of this option in your overall portfolio.
Options Trading Part III (Fighting the Theta Decay) - 12/13/2020
https://www.reddit.com/Midasinvestors/comments/kcpzpq/options_trading_part_iii_fighting_the_theta_decay/
Lastly, this post was about how theta plays a role in calculating your returns.
It basically says that shorter period options are risky considering how much more theta decay plays a role compared to the intermediate and longer period options.
Please see the summary below:
1) Invest in the best risk/reward option terms.
2) Manage your risks by either keeping your options position or rolling them over and limiting your exposure, assuming you're still bullish on the stock.
3) Be aware of the risks of theta decay when buying short-term (3-6 months) options.
Which brings me to the topic for today's post: Leveraging Margins and Long-Term Options to Amplify Returns.
I believe that the optimal strategy to invest in a company that you believe in is to buy LEAPS on the company's stock.
(LEAPS are "long-term equity anticipation securities", another fancy word for long-term options.)
Why? Because it has the three key characteristics we are looking for:
1) Best risk/reward option terms.
2) Easier to manage risks.
3) Lower theta decay risks.
I'll go into the details of why LEAPS are suitable for our purposes.
1) Best risk/reward option terms.
The reason why LEAPS offer the best risk/reward scenarios, in my opinion, is that it gives you two things: 1) time to play out your thesis and 2) self-discipline.

1. It gives you sufficient time to play out your thesis. Say you buy LEAPS on a company thinking that its next year's earnings will crush the estimates due to the amount of pricing power that the company has or the success of their international expansion plans.

On catalysts like these, you need more time for the stock to play true to the company's financial performance.
For instance, you bought Thor Industries, a recreational vehicle manufacturer, thinking that people will go for outdoor camping more due to COVID. What if Trump came out and said that the US will raise tariffs on aluminum, a key component of RVs? This will temporarily depress the stock price and if you had short-term options, you will likely realize losses.
If you had bought 2-year option, however, the stock would be given enough time to recover and actually rise above your entry point given that the tariffs news fades away and Thor Industries reports earnings that crushes the consensus estimates.
The key aspect to remember is the leverage involved in an option.
Leverage is when you put $100 to bet on a company but you actually get $1000 exposure, meaning you get 10x the exposure.
When you buy an option, you pay $1k in options premium to buy 1 call option contract on NIO to get $2800 of stock exposure ($56 stock price *100 shares * 50% delta) because each options contract is in units of 100 shares of the underlying stock.
(Delta is the sensitivity of the option price movement given $1 change in the underlying stock price. If Delta is 50% and the stock increases $1, your option price will increase by 50%.)
The point I wanted to make is that options in general provide you a leverage, which amplifies your return.
Therefore, for the amount of risk you are taking (the hefty premium paid for longer-dated options) against the reward you are receiving (the stock appreciation amplified by leverage), LEAPS offer good opportunities.
2) LEAPS also offer self-discipline.
By incentivizing you to hold on to your LEAPS when the market panics and the stock sells off, it allows you to be more disciplined, which is a key factor in a successful investing as I alluded to here.
https://www.reddit.com/Midasinvestors/comments/kpfx3h/investing_philosophy_part_iii_can_you_actually/
And of course, people will be more incentivized to hold onto their options to benefit from long-term capital gains tax.
2) Easier to manage risks.
LEAPS are easier to manage risks because you know the amount of money you're risking to lose and you know what your returns will look like in different scenarios because it's a relatively same payout profile as owning shares but magnified due to leverage.
More importantly, it's easier to keep track of their performances as we have less complex trades, compared to say a box spread trade that requires more complex strategy.
3) Lower theta decay risks.
Longer options have lower impact from the theta decay. For instance, a 2-year option price will decline by only 10% if the stock price stays the same after 5 months, whereas an 8-month option price will decline by 30-40% if the stock price stays the same after 5 months.
I also sell naked put options on a short-term basis to benefit from the theta decay but since it limits the upside potential, I tend to express my view on a company through LEAPS.
The situations where I will sell naked put options is when I think the stock is overvalued and want a chance to buy the shares at a lower price but still want to collect some income if the stock price appreciates in the short-term.
For instance, a 4-week $350 OTM put option on Costco was trading at $4 premium and the underlying stock closed at $361 on 1/15/2021.
If I thought COST was overvalued, I would want to sell this put option and collect $4 premium. If the stock declines to $345, I am more than happy to cover my put options by buying shares at $350, a price lower than $361 on 1/15/2021.
Sell puts at the lowest price when you want to buy a stock. When price goes down, you can purchase the stock. This is a bullish view.
And since I firmly believe that Costco won't fall by 20-30% given the low volatility of the stock, I'm also not worried about losing lots of money when the stock goes down.
Alternatively, sell call option at exercise price where you think the stock will max out at. This is when you already own the stock and you want to cash out at a certain price point.
This is all to say that theta decay risks are lower for LEAPS and if you want a step ahead, you could potentially sell put options in the short-term to collect income. And btw, this is also a strategy that Warren Buffett uses all the time.
To summarize, LEAPS offer a way to both limit our risks and amplify our returns, while also gaining the tax advantage.
I wanted to also mention using margins in this post since we discussed the concept of leverage.
I am all in favor of using margins and if managed properly, it can be a great way to gain advantage as an individual investor.
Every single hedge fund and private equity uses some type of leverage, whether in the form of futures, margins, or options, to magnify their returns.
If you were receiving 10% return on a very diversified, safe portfolio in a year, I believe margins will offer a way to magnify that return while limiting risks.
Say $100k is invested across 50 very safe, low volatility stocks and you borrow $100k on margin to invest $200k total. What are the chances of your entire portfolio going down by 50%? Aka $100k and losing all your money?
Not to encourage you to take so much risk but adding margins while properly managing risks is a great way to enhance your performance.
Thanks for reading everyone and as always, please feel free to suggest any topic you want to discuss!
Cheers.