SteadyOptions is an options trading forum where you can find solutions from top options traders. TRY IT FREE!

We’ve all been there… researching options strategies and unable to find the answers we’re looking for. SteadyOptions has your solution.

Understanding Growth Vs. Value Stocks


We recently received a question from one of our members: "Is value allocation a contrarian strategy that identifies stocks that are considered "cheap" relative to historical prices?  How is value measured, and how would this strategy mitigate a pool of stocks like Blackberry in 2010 that was trading at metrics less than historical trailing averages?"

Value can have similarities to contrarianism/mean reversion, but that's an outcome...not a model input. I'd start here:

 

Do All Stocks Have The Same Expected Returns?

Eugene Fama Why Small Caps and Value Stocks Outperform

 

Think about value vs. growth as low price relative to book value vs. high price to book value. On average, stocks that have low price to book ratios have historically had higher returns than stocks with high price to book ratios. This can be thought of as a rational risk premium. Why? If 2 companies have the same expected cash flows, yet one is trading at a lower price than the other, the rational conclusion is that the market views it as riskier for some reason that is being reflected in the price. Sometimes this risk shows up, and distressed stocks underperform or even go out of business. For this reason, it's very important to make sure to diversify as broadly as possible within the value category to maximize the probability of capturing the expected value premium. 

 

The data, courtesy of Dimensional Fund Advisors (full disclosure: my firm recommends DFA funds for client portfolios):
 

image.png.292923be98dc5abdd3e6d4f3ee571c17.png

 

image.png.13c531c53ab3ca99043a2bc64ed1f332.png

 

image.png.7410883e0a03ffc5d58d46273d638974.png



Jesse Blom is a licensed investment advisor and Vice President of Lorintine Capital, LP. He provides investment advice to clients all over the United States and around the world. Jesse has been in financial services since 2008 and is a CERTIFIED FINANCIAL PLANNER™ professional. Working with a CFP® professional represents the highest standard of financial planning advice. Jesse has a Bachelor of Science in Finance from Oral Roberts University. Jesse manages the Steady Momentum service, and regularly incorporates options into client portfolios.

 

 

What Is SteadyOptions?

Full Trading Plan

Complete Portfolio Approach

Diversified Options Strategies

Exclusive Community Forum

Steady And Consistent Gains

High Quality Education

Risk Management, Portfolio Size

Performance based on real fills

Try It Free

Non-directional Options Strategies

10-15 trade Ideas Per Month

Targets 5-7% Monthly Net Return

Visit our Education Center

Recent Articles

Articles

  • Micron Technology (MU) Earnings Report June 30, 2022

    Welcome to the ORATS earnings report where we scan for companies with upcoming earnings announcements, check out historical earnings information, and find a potential options trade. Read on or watch the video overview here: https://youtu.be/IDgR3FzONnI.

    By ORATS_Matt,

    • 0 comments
    • 198 views
  • Does “Managing Winners” Add Value to Short Strangles?

    Some option educators suggest short strangles have historically benefited from actively managed exit strategies. A widely popularized approach is to enter S&P 500 strangles at 45 DTE and exit at 50% of the credit received or a 21 DTE time stop, whichever occurs first.

    By Jesse,

    • 2 comments
    • 4,598 views
  • NKE Earnings Report June 27, 2022

    Welcome to the ORATS earnings report where we scan for companies with upcoming earnings announcements, check out historical earnings information, and find a potential options trade. Read on or watch the video overview here: https://youtu.be/2mtx2ja-VwQ.

    By ORATS_Matt,

    • 0 comments
    • 213 views
  • KBH Earnings Report June 22, 2022

    Welcome to the ORATS earnings report where we scan for companies with upcoming earnings announcements, check out historical earnings information, and find a potential options trade.

    Read on or watch here:

    By ORATS_Matt,

    • 0 comments
    • 281 views
  • Know How To Trade Before Making An Investment

    Everyone is searching for a way to improve their living quality. Plenty of scopes are coming to the forefront and people are grabbing the opportunities with the hope of receiving the best revenue against their investment. A share market is a place that can return the high revenue of your investment.

    By Kim,

    • 0 comments
    • 287 views
  • Implied Volatility and Standard Deviation

    1. Isn't holding a naked long call (as a result of locking in a profit or plain buying outright call) in general a bad idea? Reason I think so is because of the nature of IV: it mostly falls when the underlying is rising. So you have short theta and a big long vega moving against you.

    By Mark Wolfinger,

    • 0 comments
    • 270 views
  • Introducing a "Risk Free" Trade

    A few weeks ago, I got the following email from one of our former members: "I would like to share with you an article about "projected no risk trades" or "no risk trades". Of course I was skeptical. But when he shared the setup with me, I became intrigued. How does the following risk profile look to you?

    By Kim,

    • 6 comments
    • 1,352 views
  • What You Trade Matters

    Traders love to tell people that they can trade anything. That if you have the skills to be a trader, the specific item traded is unimportant. That may be true for some professional traders who are skilled technicians. However, it’s very different for gullible amateurs.

    By Mark Wolfinger,

    • 0 comments
    • 615 views
  • The Big Loss

    At his blog, Joey offers his perspective on the top reason that so many trader wannabes are not, and will not, become profitable traders. His post is titled: Learn to Lose Money to Make Money. Here are the Excerpts from the blog.

    By Mark Wolfinger,

    • 0 comments
    • 807 views
  • ETF Vs. Stock: Note Down the Vital Points

    Today’s small investment can fulfill your dream of high living tomorrow. But investing blindly can make it reverse. We all want to get a high return on our investment. Stocks or ETFs can be the best option for you in such cases. The investment in stocks or ETFs is not very different except few noticeable points.

    By Kim,

    • 0 comments
    • 761 views

  Report Article

We want to hear from you!


There are no comments to display.



Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account. It's easy and free!


Register a new account

Sign in

Already have an account? Sign in here.


Sign In Now

Options Trading Blogs Expertido