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What $GME has taught me in 36 hours of day trading
Jumped on the $GME bandwagon on Friday, 4 @ ~316. My 36 hours of day trading has already taught me that no matter how this plays out, I will never YOLO on a bubble ever again.
The principle seemed straightforward: hedge funds got lazy/greedy, over-shorted their positions, bet against a company that wasn't actually going under, and some astute monkies on reddit caught them and triggered a short squeeze. Even as someone who knows almost nothing about the stock market, the basic premise makes sense. But the devil's in the details, and hype is blinding.
First red flag was when I realized
DeepFuckingValue did not bet on the short squeeze, he bet on undervalued stock price
over a year ago. He has also trimmed his position such that no matter what happens in the squeeze, he walks away with 8 figures. So the people screaming "if he's still in, I'm still in!" and "look at those brass balls, if he can lose $5MM in a day then I can hold" are really living up to the dumb ape meme. He didn't lose $5MM yesterday, he lost $5MM in *unrealized gains*, there is a *huge* difference.
Second red flag was a common sense idea that hedge funds won't go down without a fight, and they have literally billions of dollars and decades of experience. You don't get that without learning how to game the system in complex, subtle ways. So even if they are still heavily shorted (which they might not even be anymore), and even if somehow
WSB is holding some kind of meaningful leverage over them, that doesn't rule out the very real possibility they have a dozen ways out of this that people like me have no idea about.
But even in the off chance that somehow this turns around, and $GME does go "to the moon," that doesn't change the fact that it's bad long-term strategy to bet on bubbles and jump on bandwagons. They almost certainly fail, and if they don't, they only serve to inflate egos that will fall even harder on the next gamble. I'm still holding my shares but I don't expect to see my ~$1200 ever again. In the off chance I break even or see a profit here, I will count it as dumb luck and use it as seed money to learn how to invest in real long term gains.
Edit: holy shit RIP my inbox. No way I can read all that.
Want to clarify a few things. Not financial advice.
My position: I knew I was late to the party. I
wanted to gamble. I knew what I was doing, and (mostly) why I did it. Hindsight showed me it was more based on emotion than I wanted to admit, but still, I'm not surprised by the outcome so far, and I'm totally OK with taking the L and calling it a lesson learned. I don't blame DFV, WSB, or anyone for my choices. I own them, even proudly, because I wanted to step out and take a calculated risk vs. sit on the sidelines out of fear of loss. I'm holding because I already bought my tickets to this ride, want to see this thing play out, and I'm fine with gambling the final $300 on the outside chance things turn around.
Your positions: brothers, sisters, nonbinary siblings:
you are not your portfolio. whether up or down, your value is not based on how big or small an imaginary number is. you are a human being on the bleeding edge of 3.5 BILLION years of evolution, you have more actual success in your past and potential success in your future than you'll ever know. 12 years ago I was a penniless alcoholic literally stealing change from my grandpa to get loaded on 211 Steel Reserve. I hit my bottom, joined AA, and now I'm a network engineer, wife, kids, the whole lot. Anything is possible if you don't give up on yourself. But I know it's not that easy, we all need borrowed self-esteem before we can see the real value inside. So if this $GME gamble hit you hard, please reach out to someone. don't give up. Hell, this bubble isn't even over, it might even turn around! But either way, don't give up.
Edit2: wow, never expected this to go this far. wrote it on my way out the door as a way to cope with the situation. read a ton of replies, probably missed most of them. thanks for all the love and hate and everything inbetween! A few more points:
- Agreed that RH deserves to be held accountable. No question they manipulated this.
- Agreed it's not over yet. the squeeze could happen. but if it does, my main personal takeaway from this experience will stand: I won't speculate on bubbles anymore. This is my position if I lose everything or make $100k.
- if you posted gains, that's awesome! so glad for you, I wish you the best!
Edit3 2/3/21: Full disclosure, I closed my position this morning at a ~$900 realized loss.
My gut says the squeeze happened, short interest isn't what I thought it was on Friday, and the stock will return to actual value soon.
submitted by austindcc to stocks [link] [comments]
The Anatomy of a Coming Disaster.
Hi.
Some of you know me, some of you don't. If you DO, I ask that you not shill for me in the comments below, so we can stay within the rules of this sub.
This post is for the newbies, it is written as such, if you already know what delta hedging is, this post isn't for you. If you
don't, well, lads and lasses, this is for you.
We need to understand a few basic things here, and in keeping with the spirit of this post, we're going to keep it dead simple.
Market Makers (the big dogs behind the scenes, facilitating your yolos) DO NOT CARE if your options plays pay out for you. They would be crazy to take on the level of risk that selling you an unhedged call or put would represent. These guys make money in other ways. So how can they not care? Simple, they hedge. Generally speaking, they buy enough shares when you buy a call so that even if you win hugely, they simply sell the shares they bought when you bought the call, and remain risk neutral. (Edit, I've been asked to explain that market makers make money by recouping the difference between the bid/ask spread. While this seems small, they do a LOT of it.)
Why does this matter?
Well, it matters because it introduces
leverage. Which simply means it amplifies the effect your money has on the stock market.
As an example of how this works lets makes up a company. We'll call the ticker ABC. And we'll say the share price is 10 bucks. You, as a degenerate yolo artiste, only have 100 bucks to play with, and you think ABC is going to the mewn.
Now, you could do the boomer thing and just buy 10 shares of ABC (we'll call this scenario A), but a lifetime of minimum wage and renting a closet for 5k a month has done strange things to your risk management, so you decide to buy calls instead. You go to whatever broker isn't fucking robinhood and take a look at your options - and there you see it. For that SAME 100 bucks you can buy ten calls and leverage a hell of a lot more shares. (We'll call this scenario B) So you do it, you buy the calls.
How does your choice effect the underlying stock?
In scenario A, you bought ten shares, you increased demand for the stock by 10 shares, and this does almost but not exactly nothing to the price.
In scenario B, you bought 10 calls, you made Mr. MM buy a lot of shares to hedge your bet, and you increased the demand for the stock by a much larger number of shares. (This is an over simplification, but that's what we do here) Which does
something to the share price. Even if it's pretty small. (Edit, as I said, this was an over simplification but I've been asked to address it. Market makers use a number of metrics to determine how many shares they need to hedge your bet. It is a lot, but it is almost never 100 times your call options)
Now, if you're part of the "We like ABC stock" gang, and 20 thousand of you buy 10 calls... Well, I forgot my calculator, but suffice to say you've just invited market makers to buy a FUCK TON of shares. Just this, without any actual change in earnings, outlook, of fundamentals on ABC, puts tremendous bullish pressure on the stock
for the term of the option And THAT my friends, is the market we find ourselves in. Talking heads on the news continue to talk about how "CraZy thE p/E raTiOs haVe bEcomE!!!" Without mentioning what is actually driving this phenomenon.
Its options. Specifically since March.
So with that I'll tell you something pretty goddamn spectacular. The stock market has become a
derivative of the options market. Earnings don't matter, fundamentals don't matter, past performance doesn't matter. The OPTIONS matter.
This has happened before, in a very different way. You know how there was a lot of noise in 08 about all the housing derivatives? We're there again, except for instead of CDOs it's happening with with the shares of the biggest companies in the world.
Want proof? Go look at 10 day spy chart, right now. Then go look at a GME chart. Look what happens to spy, tick for tick, as GME rises and falls. When the entire options meme market is focused on one ticker.
So what do we do about it? Nobody knows. I do know this, GME was only the
beginning. Retail knows it has the bull by the tail now. What happens when the stock market becomes a lagging indicator of the sentiment of retail bull chads?
I don't know, but it's going to be
spectacular.
Edit, much of the thinking around this post comes from months of conversation with a friend of mine. She's pointed out since I posted this that she has written this up in a way 10 of us will understand in her latest blog post - which can be found here:
https://nope-its-lily.medium.com/options-degenerate-marketplaces-part-1-b0ddf1c96fa6 submitted by _finalOctober_ to wallstreetbets [link] [comments]
READ THIS if you expected a huge gamma squeeze today after close above $320
OG poster
u/PlayFree_Bird
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.
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.
submitted by BlueEstee to wallstreetbets [link] [comments]
My Options Overview / Guide (V2)
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.
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: 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:
- 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.
- 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 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.
submitted by CompulsionOSU to thetagang [link] [comments]
Short ratio and why the GME squeeze will cockslap hedge funds 🚀
MODS DON’T REMOVE AGAIN, reposting so people out of daily chat can see.
So, why should you continue to buy and hold GME? Big hedge funds bet heaps of money that GME 🚀 would go bankrupt and have been put against a wall. If investors (and retail investors like us retards) hold, this forces the hedge funds to cover AKA buy back stock at whatever price is available AKA a short squeeze.
Time for some learning so take your rockets and listen the fuck up space-cadets: 🚀🚀🚀🚀🚀🚀🚀🚀🚀
Now that I have your full attention - pretty much the butt pirates over at Melvin Capital
fucked up big time. Melvin along with Citron Research (AKA Andrew "Smoothbrain" Left) and a few other companies shorted, expecting it to continue to lose ALL revenue. Now, the problem is, they overshorted GME by about ~140 fucking percent.
Essentially as long as investors can 💎 HOLD 💎 past the initial burst of buy-backs (which
could be as soon as Friday with how many ITM options are sitting on Melvin's books). If you don't understand 'Days to Cover' I suggest doing some ACTUAL FUCKING RESEARCH but in short:
"Days to cover, also called short ratio, measures the expected number of days to close out a company's issued shares that have been shorted. Days to cover is calculated by taking the number of currently shorted shares and dividing that amount by the average daily trading volume for the company in question." Short Interest (Shares Short): 61 - 71.2M
Short Interest Ratio (Days To Cover): 2.1 - 6.3
^(\there is some disparity here between data sources - approx. as reported 28th Jan 2021)*
As long as everyone holds their GME stocks, this demand by Melvin and Citron will continue to drive up the price, and this can go on technically till GME hits X number because they can only close their positions once people start selling. Remove your fucking sell limits if you like money.
No selling > no shorts closing > demand for the stock increases > price goes up even higher. There is no ceiling to this, the power is in your hands to buy and hold.
The point here is, the covering will take
DAYS to happen. DAYS. No space cadets left behind so get your fucking helmet ready for launch.
💎💎💎💎💎💎💎💎💎
🚀🚀🚀🚀🚀🚀🚀🚀🚀
Closed yesterday $147.98
Closed today ~$340.00
Closed tomorrow - Melvin Capital & Citron
Positions: x90 GME @ $40
Sources:
Ortex |
Shortsqueeze |
Fintel |
Google obviously
submitted by MoistRegrets to wallstreetbets [link] [comments]
Google Stock Analysis | Complete Fundamental DD | Is Google Stock a BUY right now? [GOOG]
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!
submitted by 0toHeroInvesting to stocks [link] [comments]
Options Explained - A Quick Beginners Guide
| Fellow Bettors, if you understand options, move on. First, proud of this community and all the giving it did yesterday. Truly phenomenal. I've noticed a lot of people on this sub legitimately don't know what options are or what they do. This is incredibly concerning, how are we going to get to the moon if we don't know how to build a rocket. As such, I've decided to write a quick reference options guide to help some of the newer, younger, or less experienced traders as a Christmas present to the sub. If you know what options are, move on. I'm going to try and make this as short and sweet as possible. A reference guide. As much as we all like loss porn, I like seeing gain porn way more and hate the thought of people losing life savings/tuition money/inheritance because they come to the sub and don't know anything about options but see a ticker with rocket ships and buy a 0 DTE 30% out of the money call with everything they have. Gotta know how to play blackjack to sit at the table. Depending on feedback, I may write a few more. If I get told to fuck off I completely understand, but if some people learn some stuff then I'll continue. I will be using $MSFT as my example. - What are options?
- The Basics/Buying vs. Selling Options
- The Money
- Calls Explained
- Buying Calls
- Selling Naked Calls
- Puts Explained
- Buying Puts
- Selling Naked Puts
- Options Pricing
- Intrinsic Value
- Extrinsic Value
- Do I Have to Hold to Expiration?
- The Details
- The Greeks
- Helpful Links
Options Explained The Basics Buying an option gives you the right to buy (call) or sell (put) 100 shares of a stock at a specific price (strike price) on or before the expiration date (European options are specifically on the expiration date). Buying calls is bullish, buying puts is bearish. To buy an option you are going to pay a premium as the other party will be accepting risk with the trade (premium explained more later). - If you believe a stock is going to go up past a certain price on or before a certain day, you buy calls.
- If you believe a stock will go down past a certain price on or before a certain day, you buy puts.
Selling an option obligates you to buy (put) or sell (call) 100 shares of a stock at the strike price on or before the expiration date, really whenever the buyer wants to exercise the option. - If you believe a stock is going to trade sideways or drop in price, you sell calls.
- If you believe a stock is going to trade sideways or raise in price, you sell puts.
The Money For Calls: - At the Money - A call with a strike price equal to the current stock price
- In the Money - A call with a strike price BELOW the current stock price, can immediately be exercised
- Out of the Money - A call with a strike price ABOVE the current stock price. The stock MUST rise to or above the strike price to be exercised.
For Puts: - At the Money - A put with a strike price equal to the current stock price
- In the Money - A put with a strike price ABOVE the current stock price, can immediately be exercised
- Out of the Money - A put with a strike price BELOW the current strike price, must fall to or below the strike price to be exercised
Calls Explained Buying calls is a bullish strategy and the most popular on this sub, and thus will be covered first. I will be using $MSFT as my example stock. $MSFT is currently trading at $215.17 and I believe that the sale of the new XBox around Christmas time will increase the stock price to $230.0 by Christmas. I would buy a call. I decide to look at the Dec. 31 options which you can see below. Figure 1 This is Robinhood on a computer. At the top you can see what each thing is which is explained below. - Strike Price - The price the stock has to rise above to be exercised
- Break Even - The price the stock has to rise above to not lose money
- To Break Even - Percent change in the stock required to break even
- % Change - Daily change in option price in percent
- Change - Daily change in option price in dollars
- Price - Price of the option
In the above example: - $215 Strike Price - In the Money, could be immediately exercised, but the buyeexerciser would experience a loss
- $217.5 Strike Price - Out of the Money, could NOT be immediately exercised.
The Break Even point is always higher than the strike price for calls as you are paying someone to accept risk. This can be calculated by taking the strike price and adding the premium paid for the option. For the 12/31 $230, $230.0 + $1.67 = $231.67. The option CAN BE EXERCISED BELOW THE BREAK EVEN FOR A LOSS. Buying Calls Ok, so the 12/31 $230.0 strike is what we are going to buy, that is $1.67 dollars PER share, for 100 shares, so the buyer would pay a total of $167.00 for the trade (depending on the bid - ask, explained in The Details below.) We go ahead an buy that option for a debit of $167.00. As the month goes on BEFORE 12/31, some things could happen: - $MSFT goes up, the value of the option increases and can be sold for a profit at any time
- $MSFT goes down, the value of the option decreases and can be sold for a loss at any time
- $MSFT trades sideways, which will result in the value of the option decreasing (explained in Greeks)
On 12/31 if you still hold the option, there are a few possibilities: - $MSFT is above the breakeven, we'll say $240.0, you can sell the option for a profit, which would be almost entirely intrinsic value, the contract would be worth around $10.00 ($240.0 - $230.0 = $10.00). This is per share! So your profit would be: ($10.00 x 100) - ($167.0) = $833. The $167.0 is the debit paid for the contract.
- $MSFT is above the strike but below the breakeven, we'll say $231.00. The contract will be very close to break even, and throughout the day will likely fluctuate to above and below. If you are still bullish on $MSFT, this is the ONLY time I would recommend exercising the option to buy the share (AND ONLY IF YOU HAVE THE CAPITAL TO DO SO). If you are bearish or do not have the capital, your best bet would be to sell the option for a slight loss. In this case it would be around $100. NOTE: ROBINHOOD RISK MANAGEMENT WILL AUTOMATICALLY SELL OPTIONS IF YOU DO NOT HAVE THE CAPITAL TO EXERCISE THEM AND IT IS CLOSE TO THE STRIKE ON THE DAY OF EXPIRATION.
- $MSFT is below the strike, hold or sell to avoid max loss. Your max loss in the trade is $167 dollars, and the stock may run up towards the end of the day. If $MSFT finishes the day below the strike, the option will expire worthless.
Selling Naked Calls If you are neutral to bearish on $MSFT because you think the PS5 will outsell the XBox, you could sell the 12/31 $230.0C. See below. Figure 2 Notice "To Break Even" turns into "Chance of Profit." This is a calculation using the Greeks of your odds of coming out on top in this trade. You sell this call. This would mean you would be CREDITED with $167 dollars initially. As the month goes on, if $MSFT goes up in value, you will begin to lose money on the trade, and if you desired to close the trade you would have to Buy to Close, meaning you payed more for the option then you sold it for. If $MSFT trades sideways or decreases in value, the options contract will decrease and you can Buy to Close the call at a lower price than what you paid for it or just let it expire worthless on 12/31. SELLING NAKED CALLS CAN BE VERY RISKY. If you sell the call, and $MSFT shoots up the next day to $240.0, the buyer of your contract can immediately exercise the call. This means that you as the seller are OBLIGATED to sell them 100 shares of $MSFT at $230. What happens if you don't have them? You have to buy them at the current market price. So $240.0 x 100 = $24,000. You would then sell them for $230.0: $23,000. Your max loss on the trade will be $24,000 - $23,000 -$167.0 = $833. And that is only if the price goes to $240.0. If the price at expiration is $250, your max loss would be $1,833. For every $10 increase in underlying, the max loss increases $1,000. To avoid this and collect premium you can sell covered calls, to be discussed later. Puts Explained Buying puts is a bearish strategy and the second most popular on this sub. $MSFT is still $215.17, and I believe the new XBox sucks. I think the stock will fall to $205.0 on or before 12/31. Below are 12/31 puts. Figure 3 None of the metrics change, except for what is in and out of the money. - $217.5 - In the Money, can immediately be exercised, but the buyeexerciser would experience a loss
- $215 - Out of the Money, cannot immediately be exercised
Buying Puts The 12/31 $210.0 strike is what we are going to buy, so that is $3.58 for 100 shares, so if purchased and filled this would cost us $358.0 dollars. Note this is much more expensive than the $230.0 call, this is a result of the strike price being much closer to the current stock price. As the month goes on BEFORE 12/31, some things could happen: - $MSFT goes down, the value of the option increases and can be sold for a profit at any time
- $MSFT goes up, the value of the option decreases and can be sold for a loss at any time
- $MSFT trades sideways, which will result in the value of the option decreasing
On 12/31 if you still hold the option, there are a few possibilities: - $MSFT is below the breakeven, we'll say $200.0, you can sell the option for a profit, which would be almost entirely intrinsic value, worth around ($10.00). ($210.0 - $200.0 = $10.00) Again, per share, minus the debit, would again get us around $642. Notice how this trades profit was lower with the same difference in strike price to underlying price on expiration. That is because the premium we paid for this trade was higher.
- $MSFT is below the strike price but above the breakeven, we'll say $207.0. The contract will very throughout the day, and unless you have the capital to exercise Robinhood risk management will likely sell the thing whether you like it or not.
- $MSFT is above the strike price, you can sell to minimize profit OR hold until it expires worthless.
Selling Naked Puts If you are neutral to bullish on $MSFT because you think the XBox will be meh, you could sell the 12/31 $210.0P. This means you would be credited with $3.58. If $MSFT decreases in value, the option price will increase in value, and you will lose money on the trade. You can hold to expiration or Buy to Close at any time for a loss. If $MSFT trades sideways or increases in value, the option will decrease in value, and you can Buy to Close for a profit at any time. THE SAME RISK APPLIES TO SELLING NAKED PUTS AS NAKED CALLS, BUT IS "CAPPED" AS A STOCK CANNOT GO BELOW ZERO. Options Pricing The price of an option has two different parts, intrinsic and extrinsic value. - Intrinsic Value = |Current Price - Strike Price|
- An Out of the Money option has no Intrinsic Value
- An In the Money Option has an Intrinsic Value equal to the difference in stock price and strike price.
- Example: $MSFT price: $215.17. For the 12/31 $212.5C, this option has an Intrinsic Value of $2.67 for each share, or $267. BUT you can see in Figure 1 it is $7.30, or $730 dollars to buy. That is where extrinsic value comes into play
- Extrinsic Value
- Effected by theta and implied volatility
- Can be calculated by Extrinsic Value = Option Price - Intrinsic Value
- Theta
- The more time an option has to expiration, the higher it is priced. This is because the underlying stock ($MSFT) has more time to move.
- The theta curve accelerates around the 45 day mark, see the figure below. You can see that as an option gets closer to its expiration it will lose value, regardless of if it is in or out of the money IT WILL DEPRECIATE
https://preview.redd.it/knprhfu1iu161.png?width=1094&format=png&auto=webp&s=80a6189eafe6f7fb8662cf5cd467d2c9b588af9d - Implied Volatility - a lot of math goes into this one, but its essentially how much a stock is likely to move during a give amount of time
- Steady stocks, like $KO, tend to have lower IV.
- High growth stock or stocks that move a lot have higher IV.
- The IV OF EACH OPTION will be different depending on expiration date, how far In or Out of the Money the stock is, and the movement of the underlying.
- IV Crush - this occurs often after earnings and results from volatility decreasing. Even with no movement in the price of the underlying an options price can be cut in half if the volatility drastically decreases, decreasing the extrinsic value. BE CAREFUL IF YOU HOLD OPTIONS OVER A STOCKS EARNINGS.
Do I Have to Hold to Expiration? Lets say we buy the $MSFT 12/31 $230.0C. Do we have to wait until December 31? No. If the underlying increases to lets say $225.0 by next Friday, 12/4, we could sell the option for likely a pretty good profit. We payed $1.67 for the contract, but the price of the Call may increase to $3.67, so we could Sell to Close for a $200 profit, allowing us to move on to another trade. But as we approach the strike delta increases and therefore may be worth holding. The break even information is only if you intend to hold the call to expiration and profit from exercising and then immediately selling the shares back into the market. Due to time and market craziness, I recommend taking profit from the option itself rather than exercising and using the shares. The Details Going back to our out of the money 12/31 $230.0C on $MSFT, if you select the option, you will open up the details surrounding that option. This can be seen below. https://preview.redd.it/9jybsf99ju161.png?width=1156&format=png&auto=webp&s=28414c66b7307b4d47e6841693976f068c0af774 This explains more about the option and can explain why it is priced the way it is. From left to right. - Bid - Highest price a person is willing to pay for the option and the amount of options asking to be bought at that price
- Ask - Lowest price a person is willing to sell the option and the amount of options offered to be sold at that price
- Mark - Often in between the Bid and Ask, what you see on the main options tree
- Previous Close - The price of the most recent option sold
- High - Highest price paid during the trading day for the option
- Low - Lowest price paid during the trading day for the option
- Volume - number of contracts traded during the trading day
- Open Interest - number of total contracts not settled
Bid-Ask Spread is the different between the Bid and Ask, in this case $.19. The closer the bid ask spread, the more likely you are to get an order filled. Slippage occurs as the spread moves up or down depending on if the movement of the stock. If the stock is rising rapidly and you are trying to buy a call, by the time you enter the order the Bid-Ask Spread might have moved up dramatically, and your order might not get filled. Open Interest is important as well. If very low open interest, Selling or Buying to close may be very difficult depending on how popular the options contract is. The lower the open interest and the wider the Bid-Ask Spread is, the more likely you are to get fucked by market makers. They will not be willing to meet at the mark or change their bid/ask and will expect you to do it. If they are moving millions of options a day, $.10 is a lot to them and they will profit off of it. The Greeks You can see the Greeks listed above for this call. - Delta - how much an options price is expected to change for every $1.00 change in the underlying. Calls have positive delta, puts have negative delta. If $MSFT goes from $215.0 to $216.0, the price of the option will increase $.1691. Puts have negative delta because the options price will decrease as the stock price increases. Delta will approach 1 as the stock underlying approaches the strike and moves through the strike, causing a natural increase in intrinsic value.
- Gamma - the change in Delta for every $1.00 change in the underlying. Gamma increases as the stock approaches the strike price and can be very powerful if the underlying is near the strike.
- Theta - change in the option price for every 1 day closer to expiration. Theta increases as the option approaches the expiration date. If you hold onto the 12/31 $230C for a day it would decrease in value .06 per contract, so a total of $6. You can see how this is an options buyers Enemy.
- Vega - How the implied volatility affects the price of the option. A drop in vega will typically cause both calls and puts to lose value. Compare vega to normal levels by looking at other options of other similar underlying. Again, BE CAUTIOUS OF IV CRUSH AROUND EARNINGS.
- Rho - sensitivity to interest rates, has to do with the U.S. treasury, you have the least control over this and this arguably effects options the least.
Helpful Links Here are some awesome links that will help everyone get better at trading options. Options Strategies | Learn To Trade Options - The Options Playbook Investing with Options (robinhood.com) Options Trading Strategy & Education (investopedia.com) I hope you find this helpful. If you made it this far I'm astonished. I hope you all make massive amounts of money and are able to beat retarded hedge funds and dumb old traders. Our generation is changing the investing game for the better, making it more accessible. If you have any questions, comments, or concerns, let me know or send me a message. Panda Edit 1: Corrected some small inaccuracies. Added "Do I Have to Hold to Expiration?" Edit 2: Due to the overwhelming positive response I will write Part 2: Intermediate Strategies for next week to include Credit Spreads, Debit Spreads, Iron Condors, etc. Thank you all, humbled by the gifts. Edit 3: Corrected some small inaccuracies. Spelled 'bettor' correctly. submitted by ThePandaisInsane to wallstreetbets [link] [comments] |
712,378 doge. HOLDING THE LINE.
| Am I retarded for putting this much money that I can't afford to lose into a highly volatile crypto-currency named after an internet meme that is mostly used to tip people on the Internet ? yes I am retarded. But you knew this already since you're reading this post on a crypto copy of WSB, the place with the highest density of retarded people per capita. Now that's out of the way, the rest of this post is meant to push back against the cave dwellers that don't understand the momentum behind dogecoin. NOT FINANCIAL ADVICE. THE CASE FOR DOGECOIN No better way to show disdain for the global financial systemA rejection of the global financial system. A system that is skewed in favor of people who are born with high capital because of compound interest and step-up basis. Dogecoin is literally based on an internet meme, it's already preposterous that it has gotten to its current market cap. I literally trust this internet meme community with my money more than I trust suits and every dollar spent on doge is a massive FUCK YOU to suits. It's a " Yes I trust a fork of Litecoin named after an internet meme of a Shiba Inu dog and built as a joke more than I trust vicious suits with my money". People outside the US are also fed up with the financial systemIn the US individual investors used a short-squeeze to run hedge funds to the ground and express their tiredness with the rigged financial system especially after the 08 crisis. Plenty of people are fed up with the financial system all over the world and were affected by that crisis. Unlike US stocks, Dogecoin doesn't care if you have a social security number. You can buy dogecoin from anywhere even if you're not technical e.g. using Binance. Dogecoin is a decentralized, global way to express your position relative to the traditional capital markets. Dogecoin's been working for 7 yearsSelf-explanatory. Dogecoin has been around since 2013 and people have been happily using it since. It is used to tip people on the Internet, for instance on here and on Twitter. Many companies are now accepting dogecoin payments including Pornhub who just started accepting dogecoin payments last week. I myself have left porn behind and although not a fan of the industry, let me quote the great Donald "Jared" Dunn here: " adult content has driven more important tech adoption than anything". Works with other ecosystemspNetworks recently added a tokenization of Dogecoin on the Ethereum ecosystem meaning Doge can be used in DeFi and all other Ethereum based apps. Heck some people are even liquidity mining doge already and reporting wild returns. Additionally, although not actively maintained there has been an ethereum/dogecoin bridge for 3 years that was proven to work. Doge/BTC and Doge/LTC are very common pairs found on virtually all major centralized crypto exchanges. If you must change your Doge for fucking fiat then you can do that too on many exchanges. Short sellersIf you just enjoy fucking with short sellers because instead of believing in something they believe in being against something (I mean seriously get yourself a purpose shorties) then you are served. You can bet against dogecoin like you can bet against pretty much anything by shorting it: buying doge and creating orders to sell it for cheaper making a profit from the difference. People started massively short-selling dogecoin since its recent rise and a redditor documented it yesterday. Stand firmly against doge short sellers by holding and buying more and they will kindly self-fuck while making you richer. Coolest community in cryptoSome notable, outspoken fans include Vitalik Buterin, Elon Musk, Reddit's own Alexis Ohanian and Mia Khalifa. The dogecoin handle's latest tweet: https://preview.redd.it/ns376bbfcre61.png?width=1186&format=png&auto=webp&s=ac5abb895e89e85732f1eb8b147d68a5abf1de62 Your keys, your dogecoinEven I with my small brain could download the dogecoin wallet in no time to make sure I, and not Vlad, own my dogecoin. They made a very simple tutorial to teach retards like me how to download their wallet on the dogecoin website. Why not Bitcoin then?Bitcoin is amazing, most of my net worth is in Bitcoin. Bitcoin is arguably the best store of value and it already has a market cap ~1/20th that of gold. This means that if you believe bitcoin is a store of value like gold (20x not accounting for future growth), it doesn't have as much room for growth as dogecoin has. Dogecoin is the oldest, most famous coin with a large market cap yet it has less than 1/600th the market cap of Bitcoin. No matter the end value of one dogecoin, it can grow a lot more than now. Additionally the facts that Bitcoin is supply-restricted and block time is 10 minutes mean that it will be very hard to use bitcoin as a currency and that much like gold, it will become a reserve against which people exchange notes saying that bitcoin backs the note (cc: the current financial system). Dogecoin on the other hand was designed to have a consistent reduction of its inflation-rate overtime, which is why it doesn't have a hard cap (like Ether btw). Dogecoin can more easily be used as a direct currency since more dogecoin is mined every year at a constant rate. Block time (1minute) and small transaction fees make the dogecoin blockchain fast and cheap. Attention to Dogecoin is attention to all of crypto and decentralization anyway. Bitcoin 🤝Dogecoin. https://preview.redd.it/xepb1cipvqe61.png?width=680&format=png&auto=webp&s=65e252fc35a3926dad8195206f14c74e5025a8e0 But dogecoin is a jokeIf you still don't get it by now you must have even less brain cells than I do. Dogecoin starting out as a joke is the point. Who cares what the goal of the initial creators of dogecoin was (yes it was a joke), dogecoin has evolved in a decentralized way into a currency that people on the Internet have validated repeatedly and that is supported by a dope community. Dogecoin is a statement against the system in place, so great if it started as a joke that makes it all the more confusing to suits. Arguably all the fiat currencies, the credit system, central banks are all jokes favoring people with lots of capital. This joke favors fans of Internet memes and decentralization. THE CASE AGAINST DOGECOIN There is, of course, no serious case against doge coin. The path forward Although I am no Nobel prize in economics laureate, I've done some back-of-the-envelope calculations that I can share. To all the people saying that since doge isn't supply-limited it can't increase in value, please ask your 2 yo daughter to explain to you the basics of game theory again before continuing to read. There are about 128bn dogecoins circulating currently. If dogecoin were to reach the current market cap of bitcoin ($616bn), a dogecoin would be worth $4.8 (200x, 20000% up). Now that might be a wild aim but since Bitcoin itself is still growing and dogecoin is 5 years younger, it makes sense to believe that it will reach at least $1, and if you're able to think bigger (growth mindset), it also makes sense to believe that over time it will reach $10. As of writing, one dogecoin is already worth about 95 satoshis. Here are various possible scenarios (again not financial advice): Pup: if dogecoin was my first investment in any cryptocurrency, I would prioritize converting most of my assets that I absolutely need to bitcoin to maintain and grow their value. Then I'd invest somewhere between 10-50% of anything that remains depending on how much it is and how much cash fiat I need on hand. I'd buy many pairs of pants and set a laundry budget and hold until at least $1 or until I run out of cash to wash all the pants I'd be going through. https://preview.redd.it/fp78od9nvqe61.jpg?width=800&format=pjpg&auto=webp&s=12f4aa102cc6d1fa08d03ca30cff7e668fb5a865 Doge: if I'm James Franco on the First Time meme, and went through the ups and downs of crypto for half a decade or more, I'd be investing most (>50%) of my remaining non-crypto available cash and maybe 10% of my BTC net worth into doge because I understand that doge is the altcoin with the most potential for growth. Beyond the aforementioned logical explanations, it's just a gut feeling and an intuition based on years of training my natural neural nets on blockchain code, crypto charts, news, memes, telegram channels, etc. Not very interested in selling but could take out some gainz when price hits a few bucks. Alpha Doge: I have held through the 2013 bitcoin and the 2018 crypto bubble. Diamond hands, balls of titanium, you name it. Never used bitcoin to buy pizza. Will convert all of my fiat currency to doge since I don't have much fiat currency anyway. Might consider pouring some of the BTC I own into doge to support the movement since I have so much BTC anyway. If doge goes up against bitcoin a lot I could convert some back to BTC to stay 100 bitcoins clear from my best buddy. I really don't care about fiat so the price of a hard asset like doge coin in fiat doesn't matter to me. Elon Musk: IF HE'S IN I'M IN. Dogecoin could arguably become a major currency on Mars. Never. Sell. Your doge. Proof: roast me for using robinhood https://preview.redd.it/sg9vjjcmvqe61.png?width=851&format=png&auto=webp&s=f14de98a8552f8cb0254abf8ae9da8cf1b92373f submitted by vulturegolfing to SatoshiStreetBets [link] [comments] |
I did some boring 20 page DD on $KSMT SPAC. Spoiler: I expect it to go up 70-100%
Disclaimer: This article my article. You are reading it first, as I didn't post it anywhere else.
Summary - Game developer with $450 million in revenue with $110M net profit valued at Price to Sales (P/S) ~4.2.
- Company seems reasonably valued, operating in growing mobile games market.
- Risk-reward ratio at current price is outstanding due to SPAC-merger rules with the cash NAV set at $10.
Not much information about this company, so I started writing my own research on the company. Here is the investor presentation:
https://nexters.com/images/inv_info/Nexters_Investor_Presentation.pdf If want to understand the valuation of the company, the risk/reward, and the potential I need to answer the following questions:
- What is Nexters Global?
- SPAC is a safe bet?
- Comparison with its competitors?
- $1.9B is cheap or expensive?
Let's begin!
1. What is Nexters Global?
Nexters Global is a fast-growing mobile game development company with
$450 million gross revenue* (2020), 85 million total game installs,
5.4 Million monthly active users, with
10x growth of revenue in the last 2 years. Already
profitable with $110 million net profit in 2020. The management has more than 10 years of experience in creating games. Located in Cyprus (Europe) with roots in Russia (a very strong IT region). They are well known for being in Game Development since early 2005 in the epicenter of the web, social and mobile game development.
https://preview.redd.it/juhbhhuwhmg61.png?width=640&format=png&auto=webp&s=529a0e927aa3bc3205430d97204d3d625f36fc8d Since the launch, the company has proven that it can develop, publish and use marketing to scale its games. With
37% of its revenue coming from the
US/Canada,
23% from Europe,
19% from Asia it is already an
international company.
\In the investor presentation Nexters Global states 310 million net revenue, as at the*
sec.gov reports it is more common (example) to use the gross revenue for gaming companies as their base metrics. That's why here and below I’m using gross revenue. Please see the spreadsheet below with a comparison to other companies. Further plans are:
https://preview.redd.it/t9kdphd0img61.png?width=994&format=png&auto=webp&s=b70e92455e253033e99a91b17b0a1f85012e1e5b - To increase the revenue of existing games (basically, double the revenue in 3 years).
- Launch new titles in 2021: 3 new games announced
- Working on the sequel of their best selling game "Hero Wars 2".
- Use cash to acquire other game developers with great games to amplify revenues using their expertise and marketing/production capabilities to make global hits.
2. SPAC is a safe bet?
There are so many SPACs, that we should be
very selective on what we choose to buy. To do that we need to check if the business is real.
There are different kind of risky SPAC’s on the market:
- Without product
- Without revenue
- Without an addressable market
- Without proof that they can scale
We need to verify that Nexters Global is not on that list. Let’s have a look at the company:
The product? Web, Social, Mobile Games. To check if their numbers are real simply open the game page in
App Store and
Google Play store.
Android Apps by NEXTERS GLOBAL LTD on Google Play Nexters Global LTD Apps on the App Store The top game has more than
50,000,000 installs with more than a
million positive reviews and an average
rating of 4.6. With other games/stores combined, it correlates with the company's stated 85 million installs.
https://preview.redd.it/jwh51gm2img61.png?width=735&format=png&auto=webp&s=428ec2dc85a4a6c1d51c67aa8fa1f7876edd3dab I like that I can see the numbers myself, and also can "touch" the product and how it works. it increases my confidence in owning the stock.
Actually, I have been playing their top-grossing game
Hero Wars for several months last year. And I loved it... loved it so much that I’ve spent around ~1000 dollars within 3 months. And I’ve seen players that spent much much more than me (higher ranked, had much more power and ranks). And there were so many players that they had to add new servers each week, or even daily.
The first impression is that I really like the product. I see how it works.
The revenue. It's huge. In the SPAC world, there are companies that can’t make revenue but predict that their revenue will go up 10-20-50x times in 3-5 years. Usually, such companies are SCAM as they mislead investors with revenue that will never happen.
On another side, Nexters Global
has already $450 million in revenue with a $110M profit. And the growth rate is
+177% YoY. And even the slowdown in growth means the actual
increase in revenue substantially, just by the magic of the compound growth.
I like the numbers very much here.
The addressable market How big is the addressable market? The World’s 2.7 Billion Gamers
Spent $175 Billion on Games in 2020; The Market Will Surpass $200 Billion by 2023. So Nexters Global is well-positioned in expanding market.
https://preview.redd.it/tf41au04img61.png?width=888&format=png&auto=webp&s=7547a1d3c2c8da43554a655d9b32bb4aaf4f2d97 Revenue geography shows that it is also diversified well. The company has proven that it can generate revenue all around the world, not just in its local market. That is very important in order to calculate the valuation of the company.
https://preview.redd.it/sxq08qg5img61.png?width=362&format=png&auto=webp&s=ed9b771d632268efb31d96d57c831d61d8caf12f But how long Nexters can generate revenue? Unlike the traditional PC gaming, where the peak of sales occurs after the launch of the game and then shrinks a lot, in the
online mobile game market - games
get updates each month/quarter to engage customers and make them stay in the game longer.
Games with great engagement + marketing resources can
stay on top charts for many years.
You just reinvest part of your revenue into marketing to earn even more. It works for games with high revenue per player (
ARPPU).
Nexters Presentation: $106 - Average net bookings per paying user(2) (Q4’20)
https://preview.redd.it/jsqcmby6img61.png?width=666&format=png&auto=webp&s=f96f6ef490ee2b16cf6ca01e8508df578bfdd302 Percentage of paying users
increases. Average net booking
increases.
With the
6% of paying users and
$106 net payment - it is quite easy to calculate that you earn
$6.36 from any user that
downloads the app, so you can spend on
advertisement a lot of money and you will
earn even more.
When you have
277% revenue
growth in
2019,
177% in
2020 it won’t just stop growing. Next year double-digit growth of revenue is highly probable.
From a statistical behavior the growth slowdown to zero is very unlikely. If we take examples of other super-hit games from
Supercell (Clash of Clans) and
Playrix (Gardenscapes).
Example: Playrix did continue to grow since 2016 explosive revenue withadding +41% YoY growth in 2018 +35% in 2019.
https://preview.redd.it/so9ijp08img61.png?width=667&format=png&auto=webp&s=6f6acbdf41374f89c045bb07c4b4e5f7dc235bf9 Another example: Supercell's revenue continued to grow at least 2 years after the revenue explosion before slowing down.
https://preview.redd.it/tjjuf159img61.png?width=855&format=png&auto=webp&s=01116616d83bbeeb34bbe98da012d22c3964f5d5 The growth Great games could continue to grow. Nexters Global estimates their net revenue to reach
$562 million dollars. That equals to
~$802 million gross revenue in 2023. And the company is
valued at just 1.9B now. Re-think that.📷
This chart also shows that they project only
+10.5% YoY growth in revenue in its current games after this year's gain. Which I think is too conservative considering the examples above. I understand that they’ve chosen the strategy not to mislead investors and should stay conservative, but I think
they will easily beat their own estimates and
20-25% growth is much more realistic.
The good thing is that
we can track their performance in terms of downloads and revenue in stores. We can stay ahead and know the data earlier than official numbers come out, which brings another level of transparency for investors.
Kismet Acquisition One Corp company
The company is led by CEO and Director Ivan Tavrin, the founder and Principal of investment firm Kismet Capital Group. Tavrin previously served as the CEO of PJSC MegaFon, Russia's second largest telecommunications operator, and before that, he founded UTH Russia, one of the largest independent media broadcasting groups in Russia.
Kismet Acquisition Two plans to target the internet and technology sectors operating in Europe, including Russia, as well as businesses established by founders with Russian origins.
Credit Suisse, BofA Securities and LionTree Advisors served as financial and capital markets advisors to Kismet Acquisition One Corp.
Advisors look good to me. The CEO's background and experience too. Additionally, he was one of the shareholders in the recently launched Russian IPO "
OZON" marketplace. Which is now
+120% up.
The only thing that sounds scary here is the word “Russia” everywhere. Is there an unwanted geopolitical risk? From the legal point of view, every entity is registered under British Law jurisdictions (Cyprus, BVI). So, basically, there shouldn't be any problems.
Well... they would better be in the US as many investors don’t like foreign companies. But there are great examples of super successful
Supercell and
Rovio that were NON-US too. And we know that the Russian Tech-sector is high qualified (Google Founder - Sergey Brin, Pavel Durov - Telegram, Vitalik Buterin - Etherium, and even Russian Hackers is a “meme”).
And as I said before their business looks crystal clear, anybody can check their metrics so they
can’t fraud the data, unlike, for example, Luckin Coffee did in China. Therefore, this kind of risk is eliminated.
3. Comparison with its competitors?
Let's talk about numbers. I’ve tried to compare the game developer to its direct competitors. I've selected only companies with major mobile game-driven revenue.
Here is the full spreadsheet access:
Nexters Global Comparison I’ve marked the concerning metric with
yellow and
red, Good metric with
green, Superb one with
dark-green color.
https://preview.redd.it/tmsosbtaimg61.png?width=1079&format=png&auto=webp&s=2b50cd7a1a54115bb496849c43b3611094fc6309 Please take time to read the numbers and come back after.
Update! With the latest news that Electronic Arts buys GLU Mobile with +39% premium from the market - the sector is officially undervalued. Thoughts on Nexters Global - Nexters is big enough in terms of revenue
- The MAU (Monthly Average Users) is not very big. While you can consider that as a “minus” that's actually the sign of a young company, with the opportunity to attract more users “cheaper” (with high efficiency). When you already big and you have hundreds of million players, you have to spend more and more money on user acquisition.
- No diversification. That’s a red flag. Hearing of 3 titles coming next year + Hero Wars 2 to be developed. And the idea of acquisition of small developers with excellent games to amplify their revenue 10-100 times promoting it around the World is the Next goal for Nexters. This will bring diversification.
- Remember that Supercell (also a European company, HQ in Finland) with its only best selling game was sold to Tencent at a $10.5 billion valuation. This "Hero Wars" game is currently following its path (in terms of growth numbers & revenue).
- Games are high gross margin projects. I assume this gross margin from the cost of revenue is: AppStore/Google Play 30% commission + spending on maintaining the Servers. That brings me to the industry average of 65%
- Marketing spending numbers are rational (20-40% zone), in order to stay profitable and to maintain modest growth.
- It's already a large scalable company. No “company growth issues” seen through this data. Sign of good management here.
- Unusually high net income seeing here. Assumption: Research & Development costs /Administrative spending / Sales and Marketing is much lower compared to other US companies. Probably they benefit from HQ being outside of the US. That should affect the company multiplicators (P/E) positive.
- With not very high US Market penetration - the opportunity still there.
- Game reviews/rating is essential in mobile games: The higher-rated games = the cheaper is the cost of user acquisition. The longer players stay in-game. The “4.5” rating tells me that customers of this company are very satisfied.
- Fascinating growth. Very young company. The slowdown in growth is expected but compound growth is still very probable.
- Estimated Compound Annual Growth (CAGR) is 25%. Which would bring the company ~$802 million revenue in 2023.
- Is the company valued right? It's more profitable in comparison to its competitors, its double-triple digit growth company with all signs of the trend to continue.
- The company is honest with its estimates and setting very realistic numbers. Other SPACs prefer to predict 10,20,50x revenue in the future even without proving they can scale. This company is doubling-tripling every year and shows estimates of 25% annual growth each year.
I ended up with numbers:
P/S = 4.19, P/E = 17.27. This valuation seems just right with current earnings and the sector, but not with the future growth. As there is a Hot trend in gaming and with outstanding YoY growth could be worth much much more.
4. $1.9B is cheap or expensive?
The current price of $KSMT (“GDEV”) is $10.15 which represents a $1.9B valuation. Before the deal is completed the price cannot be valued less than $10 due to SPAC rules. So there is simply no downside risk at this point..
But can it go up? What is fair valuation? Is there a risk of a selloff from shareholders? How rich the valuation can be in terms of P/E (Price to Sales ratio)?
First, let's find out the risk of insider selling:
Here is the sec report:
https://www.sec.gov/Archives/edgadata/1814824/000121390021005589/ea134294ex99-1_kismet.htm The Transaction is expected to deliver up to $150 million in cash to the Company’s balance sheet before advisor fees and/or redemptions by Kismet Acquisition One Corp. current shareholders, with proceeds expected to be used for general working capital purposes and potential acquisitions. Existing shareholders of Nexters will receive a cash payment of up to $150 million pro-rata to their pre-money shareholdings, and will roll approximately 92% of their holdings into the combined company while agreeing to a 12 month lock-up (subject to certain exceptions). In addition, the founders and the management will receive 20.0 million Earn-Out shares over 3 years (with 50% of the Earn-Out released at $13.50 VWAP and 50% released at $17.00 VWAP), also subject to a 12 month lock-up. The Transaction will be funded by approximately $250 million held in trust by Kismet Acquisition One Corp., subject to any redemptions, as well as the additional $50 million investment by the SPAC Sponsor, Kismet Capital Group, via an affiliate. The investors will have a 12-month lock-up on selling + they get benefits on reaching the valuation 35% and 70% higher from the current price. This means that there will be no insider selling in the near term, which is very positive signal.
Acquisitions Nexters Global plans to use proceeds in M&A (buying small game development studios with great projects that just don’t have enough cash, expertise, or right developer team) to benefit from its situation in order to launch great games worldwide.
https://preview.redd.it/xhypgzqfimg61.png?width=1000&format=png&auto=webp&s=642c03fecbb851984527c46774beb0ecc44eba0a It is a common mistake to assume that great games can be run by small studios or individuals, as in 2020 you need at least a couple of million dollars spent on marketing to understand if the project is worth it, or not. Small developers can’t afford it. On the other side, Nexters can benefit from it really well.
If they are successful in that, we could see 10+ new titles in the future. That could diversify its game portfolio, making this company a safe bet for Hedge funds and other market players, driving future growth.
“Hero Wars 2” game announcement. Hero Wars is the top-grossing game, which generates most of the revenue. With “Hero Wars 2” announcement the company can benefit a lot..
Usually, game sequels can do very well, as they are easier to promote, finding their “fan base” from the beginning. This could create a new source of income, work as a diversification, launch the new cycle of the revenue stream for many years ahead.
Partnership with Playrix founders Here is another thing that I want to focus on:
Bukhman brothers acquired a
43% stake in Nexters in 2018
They are founders of “Playrix” - a private mobile game developer company, currently valued at $7B(valued in Q1 2020). Now more likely
~11B as their revenue increased
1.5 times during 2020.
Please read these articles in Bloomberg and Forbes first:
- https://www.bloomberg.com/news/articles/2020-09-29/billionaire-gaming-brothers-emerge-as-tencent-s-biggest-rival
- https://translate.google.com/translate?sl=ru&tl=en&u=https://www.forbes.ru/milliardery/410509-nash-rost-ne-svyazan-napryamuyu-s-lokdaunom-milliarder-igor-buhman-o-tom-chto
Summary from the articles:
Cashing out (selling out to Tencent or Activision Blizzard) is not interesting right now. We are growing every year. Game industry multiplicators of public companies were priced wrong . This year has changed it. And this trend will continue as top games can grow for many many years, reengaging users with updates. Playrix is not interested in IPO's at this valuation. They want to wait until the market changes and start pricing gaming companies at different valuations, not the 4-5 year revenues, but maybe more like Tech companies are valued now (P/S 20-30 instead of 4-5)? I can assume that Playrix founders are
interested in the long-term success of Nexters Global SPAC-merger in order to change how markets price the gaming companies as they want to bring Playrix to an IPO in the future. They want to wait until the market starts pricing gaming companies at different valuations, not the 4-5 year revenues, but maybe more like Tech companies are valued now (P/S 20-30 instead of 4-5)?
So, for the Bukhman brothers who own
43% shares,
Nexters Global is a long-term play company. They don’t want/need to cash out.
I also think that at some point,
Tencent could just buy 20-30% of the company through the open market (buying shares). Why? Because it is common for Tencent to buy a stake in gaming companies that earn a lot of cash and priced at these valuations.
https://preview.redd.it/uphpbubcimg61.png?width=804&format=png&auto=webp&s=4f35889049fa9302786bf65d1b83f02a92d71eef
Summary
In my personal opinion, this is a great company with a bright future.
Valuation seems reasonable and there is a big upside if any of those happens:
- Company starts to actively search for acquisition targets (we will see from press-releases)
- Company launches "Hero Wars 2" title
- The company beats its own low guidance estimates (which I think the most probable)
- Company launches more titles which enter “Top ranks” in AppStore/Google Play store.
- Aggressive Tencent/Other major Gaming Holdings buying.
At this exact moment, the fair valuation of the company will move to
$3-4 billion dollar. (+100% upside).
At this right moment of the time as the price is near $10 there is literally no risk in a pre-merger state, as SPAC can’t go below $10 price by its concept.
Disclosure: At the moment of writing this article I do have a position in $KSMT, that is not more than 10% of my entire portfolio. I do not plan to sell at any nearest time in future. Stocks are risk assets and this is not investment advice.
submitted by khollekhokk to SPACs [link] [comments]
Expected Value (EV) on $GME & Exit Strategy For Those Wanting To Profit
Vitards,
Since steel and other stocks are going to be very volatile this week based on $GME, $AMC, etc. I thought I'd help break down some of my thoughts on $GME and exit strategy. The whole point of this post is to
remove emotions from my trading. I also want to provide this special to you because I feel the users in this subreddit are a lot more open to analysis and conjecture than WSB (don't prove me wrong).
These are all my thoughts and expected outcomes. You should do your own EV based on your own thoughts.
Background Every time we make a bet we are doing an internal assessment of what is called
expected value%20is,summing%20all%20of%20those%20values). Everyone probably learned this at some point in math class. To remind you:
(Outcome #1 Payout * Probability) + (Outcome #2 Payout * Probability) + (Outcome to the nth degree [there can be infinite outcomes] * Probability) - Buy In. All probabilities sum to 100%.
This will make more sense at the bottom when I show the math. For now know that calculating a realistic EV is a great way to remove the emotion of trading (something Vito has preached here).
*Note: If you want background on the $GME situation you can see
my post on WSB here.
Assumptions There is a lot of information out there supporting multiple viewpoints. For this EV we need to first assume what is true. I will for this analysis believe what I posted in my original WSB post:
- Shares short is at or over 100% of the float despite media reports
- Hedge funds have $80B in assets remaining meaning as long as they get their shares needed they could pay the interest for years
Outcomes Personally I believe there are 6 main outcomes with $GME to consider. I will rank these in worst for the retail investor to best:
1) Retail Investors Start Selling - The media/hype/ladder attacks will sow enough doubt that people sell
- Hedge funds will quickly unwind their positions, remain solvent, and this ends by GME settling on a realistic price
- I personally find this situation unlikely given Friday's activity and the sentiment online. I think there are some whales supporting the high prices
- My estimated realistic GME price: $60
- My estimated chance of probability: 15%
2) GME Offers Shares & Retail Investors Sell - GME would offer 1M shares to help the hedge funds and raise capital
- Hedge funds get their % short low enough to wait for others to sell to slowly unwind
- Personally I don't see GME offering shares before this is solved because it could upset their entire client base but even if they do I also think there is a real probability hedge funds won't grab enough to fully remove themselves from the situation
- My estimated realistic GME price after hedge funds unwind: $60
- Estimated chance of probability: 7%
3) GME Offers Shares & Retail Investors Hold AND/OR Hedge Funds Keep Getting Enough Shares To Cover Through Whatever Means - This outcome has two ways in but the same price for both. The first way is GME offers shares, retail investors grab a ton of them, and no retail investor sells. Hedge funds we assume grab enough shares to cover upcoming short positions . The other way in is GME just never offers shares and we stay in a stalemate anyways.
- A stalemate would happen because short hedge funds can't close their positions due to low volume but keep getting enough to cover the most toxic ones, extending the squeeze further and further
- This would be similar to what may be happening with Tesla. You get a valuation no one trusts but also one that no one can get out of
- The situation ends with either terrible news causing retail investors to sell or ends in the hedge funds going broke (which triggers outcome 4, 5, or 6)
- For this outcome I'm going to assume you eventually want to sell. Why sell? Because you want to be a retail investor that exits before bad news or some other event that makes everyone else exit. In other words continuing to hold imposes a lot of risk. But the reward is you can lower tax burden after a year of holding.
- I believe this to be low at the current moment given how many shares WSB holds and the overall volume of trading (which is virtually nonexistent right now)
- Estimated GME Price: $300
- Chance of Probability: 15%
4) A Price Increase With Price Cliff Below $1000 - Let's assume hedge funds stop the ladder attacks and price rises. Now assume we hit a price cliff (see other post for explanation) that causes mass selling before a share price the HFs go broke.
- Typically these price cliffs are certain numbers due to pricing psychology. So first we see $500, then $600, then maybe $800.
- We will assume that at these cliffs enough sell that the hedge funds cover their shorts and stay solvent
- Special Note: For all assets not in GME there would likely be flash crashes to cover their debts
- I personally think there is a real chance of this due to pricing psychology. WSB posts tend to err towards what I would call greedy. And if the shorts grab enough shares at these price cliffs they can stabilize or keep slowly lowering the price for months (so triggers us back to #3). However I'm going to give it a lower probability for now because I do think WSB owns A LOT of shares.
- Estimated GME Sell Price: $600 (I'm assuming we don't catch the top)
- Chance of Probability: 35%
5) Intervention - I've read and made a lot of comments on this. Essentially GME could very well cause a huge market disaster. There is a chain of command for payment to the shareholder - first the hedge fund, then the broker, then FDIC (banks), and finally the government would just have to print money to cover. Since shorts needs a massive amount of shares prices could theoretically go to infinity.
- The SEC wants to prevent this. Why destroy massive businesses and the entire market when in reality everyone was doing legal activity? We can blame hedge funds all we want but there was no law against massive short selling to my knowledge. At the end of the day a market crash would rest on the SEC's shoulders.
- So let's assume SEC uses their power stop trading. I could see a scenario where they outlay a plan where they buy all shares, fine the hedge funds a certain amount (but probably keep them in business), and then reissue the shares at a set price to recoup the government's bailout loses. I think it likely it's $700-$1000/share. I'll go with the low end.
- Estimated Sell Price: $700
- Chance of Probability: 27%
Special note: We just found a prisoner's dilemma! Notice how in outcome #5 you had the chance to sell at $800 which is ABOVE the $700 intervention? You have incentive to go against your fellow retail investors.This has not been discussed because it may trigger Outcome #1 immediately but once the price starts taking off those that are willing to sell could very well end this before the hedge funds go broke. How do you tell if this is going to happen? WATCH THE VOLUME CAREFULLY. A huge selloff at a certain price will instantly trigger #4. Based on how other assets (look at crypto) seem to rise and fall this is why my probability of a price cliff is higher than a bailout currently.
6) The Mother of All Squeezes - For fun let's assume fantasy land. This is where all retailers hold until they can get whatever price they want and no one stops it.
- This exorbitant price would potentially cause the entire chain to bankrupt. Therefore since you can't get your assets we end up with the government backing the shareholders. The law is $250K protection for singles and $500K for couples.
- Estimated GME Sell Price: $500K (change to $250K if single)
- Estimated Probability: .01%
Note: You would lose all your other assets so you would also have to subtract that from your EV
EXPECTED VALUE Now that we have considered the main outcomes and assigned a % to each - that in total adds up to 100% - we can see what our expected value becomes.
Outcome | Price | Probability | EV |
1 - Selloff | $60 | 15% | $9 |
2 - Selloff due to GME issuing shares | $60 | 7% | $4.20 (lol) |
3 - Stalemate | $300 | 15% | $45 |
4 - Price Cliff | $600 | 35% | $210 |
5 - Intervention | $700 | 27% | $189 |
6 - Squeeze | $500K | .01% | $50 |
TOTAL | | | $507.20 |
So our EV calculation is $507.20 minus Buy In. Assuming your buy in is $200, you have an expected profit of $307.20. This is why I personally continue to hold my shares.
But this EV is not set in stone. Every time an event or news source occurs I can update my figures accordingly and calculate my new EV telling me whether to hold, buy, or sell.
APPLIED THEORY WITH EXIT STRATEGY So now that we know the game theory and applied our own expectations to get EV - what should our exit strategy be and watch-outs along the way?
- If shorts are potentially in the background negotiating deals (likely with another hedge fund, GME, or the SEC), we should see ladder attacks all day to keep price low. This will likely trigger outcome #1, #2, #3, #5. Volume will indicate which direction. No volume = continue to hold.
- If no deal looks likely then shorts will be forced to take the next riskiest option which is to let price go up in hopes of finding a price cliff below the ultimate price/share they can pay. This could also be forced by the retail investors if demand is high enough for shares. In this situation we start to increase probability for outcome #4, 5, and 6 and we would increase the likelihood of a higher priced #3 (say $500 instead of $300). No volume = continue to hold. Significant volume increase on the sell side = sell.
- If a price cliff forms below the bankruptcy/share number (which is estimated here, I don’t know it for real) with significant sell volume, then you need to determine whether you think you make more money selling at the moment or waiting on intervention. My personal opinion is sell.
- If no price cliff appears and we go to the mother of all squeezes (>$1000/share)....well the government will figure that one out for us.
Now if you want to be more risk-averse and not watch your screen all day, you would do the EV above and set a sell limit at or slightly below your expected EV. So in this instance I may set a sell limit at $498
(see what I did there? I applied pricing psychology noting that $499 & $500 are attractive to people so I set it where I’m guaranteed to get out near the top) Less risk-averse people you can follow the above and adapt EV along the way. In many situation these people
can make more money because they are willing to shoulder the risk. But then as you see they
can lose more money too because when risk-averse all sell at $498 they have to sell at a much lower price after the crash.
TL;DR - Set an EV
- Adapt your EV
- Plan an Exit Strategy
- Keep Emotion Out Of It
submitted by Hundhaus to Vitards [link] [comments]
Made $16k in 24 hrs on PRPL last options expiration, or how to play max pain!
| Yep. I made $16k in 24 hours by playing against MMs move to max pain on the last options expiration. Proof: https://preview.redd.it/q2rmkpgtm2561.png?width=1242&format=png&auto=webp&s=b4964298a012ca2bc8535d44a85909f6403bc2a1 I sold 400 30p 11/20's for ~$0.40 each for about $16,000 in profit on the day before expiration when the stock price was about $29.70. Why did I take such a "risky" move? Because PRPL religiously follows max pain when it isn't in the middle of its mid-quarter run up. What is Max Pain? I'll spare you my own detailed explanation and let you google it yourself (or for the lazy, start here). Basically, Market Makers' delta hedging actions, in the absence of an underlying or external force driving movement in the stock (aka news event), will force a stock to land at the max pain price on options expiration. No, it isn't some sinister coordinated action against you. It's just the math of the position and strategy that Market Makers take. And yes, this is a controversial topic in some circles, but so is Wall Street Bets. Those circles are clearly stupid on both accounts. We know what we are doing here. Why don't all stocks follow this and how come everyone doesn't just play this? Two words: retard strength. Never ever, ever, ever attempt to play this against a stock with a constant influx of retards buying up positions on the stock (looking at you Tesla!), aka retard strength. Retard strength and major news events present a gamma risk to the market makers and can cause movements in the underlying price of the stock that they are unable to "manage" to the same degree. As the market makers are constantly trading their hedges, new buyers (or sellers as it may be) can provide price support outside of max pain targets. THIS is exactly why PRPL is PERFECT for max pain plays. Outside of its traditional late-quarter run up into ER, PRPL is about as boring as it was for your date your first time in bed. There's very little short-lived action and nobody is talking about it much the next day. PRPL and Max Pain Historical Max Pain Data from Opricot Let's look at how well PRPL has tracked against max pain, EVEN for post-ER price action. See, PRPL tends to get very excited on the run up to ER (it blows its load early), and disappoints when it is time to score (Joe Megibow, while a great CEO, is the anti-Elon-Musk in terms of ER excitement). For max pain plays, this is perfect because there is no external price support outside of MM's driving to max pain. Even for the infamous Q2 ER that I called wrong, PRPL ended at max pain just days later. PRPL works really well for max pain because there is an inordinate amount of option activity compared to a relative small amount of stock volume. It's the perfect scenario for a MM to maximize their strategy, but it makes PRPL price action PREDICTABLE. If you can predict the price and the timing, you can make money using options (and stock trades), ESPECIALLY because PRPL tends to have fairly wide swings between expiration dates (noted above). All you simply need to do is make a play on an outside swing betting that it will return to max pain, and voila: tendies. What are the risks? Clearly, you are in the wrong sub if you just asked this question. For the benefit of the outsiders who don't truly belong here: - max pain is a moving target
- max pain can't be perfectly calculated
- news events can break the pattern (which is why this works on boring stonks with high option volume relative to stock volume)
Max Pain is a Moving Target https://preview.redd.it/ck0rcxoer2561.png?width=1528&format=png&auto=webp&s=a7b6678cdd1cc09e0131252a19b0abfb4c1d7c42 Our very own Swaggy Stocks has one of the best max pain calculators I've seen ( this one is ok too, especially if you don't want to pay for Opricot). Towards the bottom of Swaggy's is a historical max pain chart which helps explain that max pain is a moving target. People are constantly buying and selling options. The net of the open interests and strikes is the max pain price. So, max pain can move on you after you've made your play (which is why I wait till closer to expiration). Max Pain Can't Be Perfectly Calculated While we know open interest and strikes, we don't necessarily know WHICH SIDE of the play the market makers took on each play. This doesn't invalidate max pain theory, but it presents a risk that should be understood when making these plays. If you assume that the market maker is always taking the short side of an options play, you will likely be generally correct (because who's theta gang, really? Oh right, me.), and can rely on max pain as a guideline. News Events Can Break the Pattern An inordinate amount of volume from a news event or retard strength can break max pain theory on a stock (see the PRPL expirations BEFORE ER that are the run up to ER). I probably won't play January on PRPL, but I'm playing December. Prediction and Positions My prediction is that PRPL ends very close to max pain of $30 again on 12/18, which would represent a nice movement up from the close on Friday of $27.435. Of course, you autists could all pile in and move the max pain target on me, but I thought I would take that risk and share this. Assuming you guys don't bring retard strength in a bad way (move max pain and then deflate the price action activity at the end of the week, allowing a max pain ending at a different price), then we will see $30 by week's end. https://preview.redd.it/gc0yec3at2561.jpg?width=932&format=pjpg&auto=webp&s=8cd9b05b0f7797c4ec37da569b4c170cab2f7cc3 I'm playing 100x each of 25c, 30c, and short 30p. All 12/18's. This isn't investment advice, nor a recommendation, but for you autists who can't put two and two together: shares and ITM calls. If you guys jack this up, then lesson learned from me, and I'll never remind you of this again. You will all forget about it like the goldfish you are and I'll play it again after next earnings for some tendies. Technical Astrology You all know what I think about Technical Analysis. Confirmation bias at best, and a cheap fortune cookie most likely. The Technical Astrologers on Stocktwits are calling for similar price action to the 30's next week based upon magic charts: https://preview.redd.it/jrr7a86du2561.png?width=687&format=png&auto=webp&s=57f9a6cbef45634f68cef6cdbb7e8f23b7269c21 I shamelessly swiped this from some guy's post calling for a double bottom, which means things are looking up. I don't know about you, but a double bottom means a threesome to me, which means things are looking up. I put about as much weight into the above TA as this: https://preview.redd.it/85sylewmu2561.png?width=1200&format=png&auto=webp&s=ddb4395192ae24c5f4a1975bbc42aeb65af3444b The above is still related to double bottoms and threesomes. Clearly she didn't take into account her own game when making this stupid COVID rule. For any man or woman brave enough to take that on, it counts as a threesome. Legally. The in-between skin on rolls is usually purple, so buy PRPL. The Big Boys are Doing It BlackRock increased its holdings by 53.7% in PRPL during 3Q, according to their latest 13F, so they know own about $36.3M in PRPL. Vanguard also increased their position. I'm very bullish still long term and think we'll see this baby in triple digits in the next two years easily based upon their announced manufacturing capacity and the fact that they still sell everything they make. There's definitely opportunity in short term plays though. submitted by lurkingsince2006 to wallstreetbets [link] [comments] |
hedge your bet calculator video
Find out how to Hedge a Bet to assure winnings regardless of the outcome of your original wager. Our article is perfect for those wanting to learn how Hedge Betting works. Try our Hedge Betting Calculator to make your life easier, by simply adding your initial bet amount against the new odds for the betting market. A hedging calculator is a great help when it comes to making profits when trading on betting exchange sites such as Betfair, Betdaq, Smarkets and Matchbook. So here at freebets.com we decided to put together a guide to how to hedge your profits on exchange betting with the aid of a hedging calculator tool. What is Hedging? A hedging bet (also known as a hedge) as a strategy can be done to guarantee a profit if odds have moved in your favor, or in a worst case, limit your losses if the odds move against you. This can be done in both pre-game and in-game (live) markets. If you wanted to hedge your original Knicks bet, you could place a moneyline bet on the Rockets. If you input these numbers into the hedge calculator, you will get a hedge bet amount of $24.55. Placing a $10 bet on the Knicks at +350 and another bet of $24.55 on the Rockets at -120 would result in a guaranteed profit of $10.46. After Manchester United take the lead, their price comes in to 1.28 and you want to trade out to secure a profit no matter what else happens. This is done with a simple lay bet, but you need to know how much to lay for. Within seconds, the hedging calculator tells you to lay £140.63 and you're out with your £40.63 profit (less commission). Go to the hedge calculator and enter in “100” as your initial wager, “4000” as initial potential winnings, and “204” as odds for potential hedge. The calculator tells you to bet $1,348.68 to ensure that no matter what happens in the game you’ve locked in a profit of $2,651.31. Hedging Live Bets Hedge calculators are also easy to find and use, making them even more of must when hedging a bet. In order to use a hedge calculator, you will need to enter the odds and stake from your original bet, along with the odds of the hedge bet you are planning to use. Hedging Calculator If you've had a bet and it's shortened in price, use this calculator to see how you can guarantee yourself a profit using the betting exchanges - win or lose. Simply fill in the boxes with your back price, stake and lay price then click the recalculate button to see how much you should lay (shown in red) at the specified If you have heard of the term ‘hedging your bets’ then this calculator will allow you the opportunity to do precisely that. The Hedge Bet Calculator (also sometimes known as the Lay Calculator) is a way of betting on both markets (to win and not to win) in such a way to ensure that regardless of the outcome, you will make a profit. Parlay Hedge Calculator. If all this is too much for you, why not do it the easy way with our Parlay Hedge Calculator below. How to use the Hedge Betting Calculator – Enter the stake and payout of the original bet along with the odds of the other side of the bet (your hedge).
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hedge your bet calculator
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