Valuation glossary

Plain-English definitions of the 101 terms Strike Optics uses across valuation, options and financial health. Nothing here is investment advice.

alert price
If the stock trades at or below this price, the row lights up. That's your cue to take a look.
analyst actions
Recent rating changes from Wall Street firms: upgrades, downgrades, initiations, and reiterations.
analyst price target
The average 12-month price target from Wall Street analysts covering the stock: a sentiment gauge, not a model.
annualized yield
The option premium expressed as a yearly rate on the capital at risk, so contracts of different lengths can be compared.
avg cost
Your average purchase price per share for this position.
backtest
The model applied to what filings and prices said on each past date, across ten years of S&P 500 members, delisted names included. Simulated and rebuilt when the engine improves; the live record is separate and never rewritten.
beat rate
The share of recent quarters where reported earnings per share came in above analysts' estimates.
beta
How much the stock moves relative to the market. 1.0 moves with it; above 1.0 is more volatile; below is steadier.
breakeven
The share price at which the position starts to lose money; for a sold put, the strike minus the premium received.
capitol hill trades
Stock trades that members of Congress and senior officials must disclose under the STOCK Act. Filings report a value range, not an exact amount, and can arrive up to 45 days after the trade, so this is a lagging signal.
cash-secured put
Selling a put option while setting aside cash to buy the shares if assigned. You're paid a premium to agree to buy the stock at a lower price.
collar
Holding shares while selling a call and buying a put; the call funds the put, capping both upside and downside.
consensus fair value
What a share looks worth from the company's fundamentals, apart from its market price: the methods below averaged, weighted by the company's growth profile.
covered call
Selling a call option against shares you own. You collect a premium in exchange for capping your upside at the strike price.
credit spread
Sell one option and buy a cheaper one further out as insurance: the net premium is kept if the stock behaves, and the bought wing caps the worst case at a known amount.
current ratio
Current assets ÷ current liabilities. Above 1.0 means the company can cover its short-term bills.
dcf
Discounted Cash Flow: estimate value by projecting future cash and translating it into today's dollars.
debt to equity
Total debt versus shareholders' equity. Higher means more leverage, so potentially higher returns but more risk.
discount rate
The annual return investors require. Future cash is scaled down by this rate because a dollar later is worth less than one today.
dividend discount
Values a stock as the sum of its future dividends discounted to today (Gordon Growth Model).
dividend safety
A 0–100 composite of how sustainable the dividend looks: payout ratio, cash-flow coverage, growth streak, and balance-sheet strength.
downside cushion
How far the stock can fall before a sold put starts costing you: the gap between today's price and the breakeven.
dte
Days to expiration: how long until the option contract expires.
enterprise value
The total value of the business: market cap plus debt, minus cash.
eps surprise
How much reported earnings beat (+) or missed (−) the analyst consensus, in percent.
EV/EBITDA
Enterprise Value to EBITDA: the whole company's value (incl. debt) versus earnings before interest, taxes, depreciation and amortization.
ev/revenue
Enterprise value versus revenue: the whole business (incl. debt) priced against sales. Useful for unprofitable growth names.
fairly valued
The price is close to the estimated fair value; neither clearly cheap nor expensive.
fcf
Free cash flow: cash generated after running and investing in the business.
fcf coverage
Free cash flow divided by total dividends paid. Above ~1.5x means the dividend is comfortably funded by the cash the business generates.
fcf yield
Free cash flow as a percent of market cap. This is the cash-return the business throws off relative to its price; a higher number is cheaper.
forward p/e
Price versus next year's expected earnings per share; cheaper than trailing P/E when earnings are growing.
graham
Classic Benjamin Graham value formulas, plus valuing a stock by its dividends.
graham formula
Graham's revised formula estimating fair value from earnings, expected growth, and bond yields.
graham number
A conservative floor price from earnings and book value (it caps P/E at 15 and P/B at 1.5). Built for asset-heavy defensive stocks, so it reads very low for asset-light companies, so we show it as a margin-of-safety reference, not in the fair-value average.
gross margin
Gross profit as a percent of revenue: what's left after the direct cost of making the product. Higher means more pricing power.
growth profile
Where the company sits on a mature ↔ hypergrowth spectrum, from its revenue growth and how far today's cash conversion sits below the sector's steady state. Growth names weight the revenue-driven Growth DCF most; mature names weight the classic cash-flow models.
growth streak
Consecutive years the annual dividend per share has increased.
growth_dcf
Growth DCF: value the business a company is becoming, by projecting revenue forward and letting the cash-flow margin mature to a sector steady state. This is how growth companies that reinvest everything (little or negative cash flow today) are valued professionally.
health score
0-100 average of the four health-scorecard axes: profitability, growth, financial health, and cash generation. The Health tab holds the graded metrics behind it.
implied discount rate
The required return today's price implies, found by solving the DCF backwards for the rate that matches the price.
implied volatility
The market's expectation of how much the stock will move, priced into its options. Higher IV means richer option premiums.
income engine
1-month cash-secured puts on companies with real free-cash-flow yield: premium targets sized to that yield, a quality screen, and assignment priced against the model's fair value. Adapted from Goldman Sachs' 'The Art of Put Selling' (2013).
income engine score
0-100 fit against the income engine's screen. FCF yield weighs most, then model upside, balance sheet, profitability, and option richness. Without positive free cash flow the score caps at 20. A screen, not advice.
information coefficient
The rank correlation between predicted upside and the return that actually followed, computed fresh each month and averaged. A tradable equity signal typically runs 0.03 to 0.05 with t above 2; zero means the ranking carried no information.
insider activity
Purchases and sales of the company's stock by its own executives and directors. Insiders buying with their own money is often read as confidence.
insider ownership
How much of the company its own executives, directors, and founders hold. High skin-in-the-game tends to align management with shareholders.
institutional ownership
The share held by funds, pensions, and other professional managers.
intrinsic value
What a share looks worth from the business itself: its revenue, profit, cash flow, assets and debt, projected forward and discounted back. Independent of the market price, which is what makes the comparison between the two meaningful.
iron condor
A put spread below the price and a call spread above it, sold together: both premiums collected, profitable if the stock stays between the short strikes. Risk capped by the wings.
margin of safety
Buying below fair value on purpose, so the investment still works even if the estimate is somewhat wrong. A 20% margin of safety means paying at most 80% of fair value.
market cap
Market capitalization: the total value of all the company's shares (price × shares outstanding).
market expectations
What annual growth the company would need to deliver, for ten years, to be worth today's price, shown next to what it actually delivers.
market-implied growth
The growth rate today's price already assumes, found by running the DCF in reverse until fair value equals price.
median fair value
The middle simulation: half the runs value the stock higher than this, half lower.
momentum
The stock's own price trend over the trailing 12 months: green and up for a one-year gain, red and down for a one-year loss. A quick read on whether the market has been pushing the shares up or down lately.
monte carlo
Running the engine's cash-flow model thousands of times with the assumptions randomly varied around the base case, then scaling the results onto the consensus fair value, producing a range of fair values and probabilities around the published verdict instead of one number.
multiples
Relative Multiples: value a company by comparing its price ratios (like P/E) to typical values for its industry. The fair P/S multiple is scaled up for fast revenue growers.
net credit
What you're paid up front after the option you sold brings in more than the one you bought cost. Negative means the position costs money to open (a net debit).
net margin
Net profit as a percent of revenue: the bottom line, the cents of profit per dollar of sales.
off 52w high
How far the price sits below its highest point of the past year: a rough 'on sale?' gauge.
open interest
The number of option contracts currently outstanding at a strike: a proxy for how liquid and actively traded it is.
operating margin
Operating profit as a percent of revenue: earnings from core operations, before interest and taxes.
overvalued
The methods estimate the stock is worth less than its price, potentially expensive.
P/B
Price-to-Book: price versus net asset value per share. The fair P/B is scaled by return on equity, so asset-light and asset-heavy companies compare fairly.
P/E
Price-to-Earnings: price divided by earnings per share. Roughly, dollars paid per $1 of annual profit.
P/S
Price-to-Sales: price versus revenue per share. Useful when profits are small or negative.
payout ratio
The share of earnings paid out as dividends. Very high payouts can be hard to sustain.
peg
P/E divided by earnings growth. Roughly, are you overpaying for growth? Under ~1 is often considered cheap.
percentile range
The p5–p95 band holds 90% of the simulated fair values: a plausible range given how uncertain the assumptions are.
prob otm
A rough estimate, from the option's own implied volatility, of the chance it expires worthless, meaning the trade works out for the seller.
prob undervalued
The share of simulations in which fair value came out above today's price.
protective put
A put you buy against shares you own: the right to sell at the strike, putting a hard floor under your losses. Portfolio insurance, paid for by the premium.
quick ratio
Like the current ratio but excludes inventory, so it's a stricter test of short-term liquidity.
relative volume
Recent volume versus this stock's own three-month average: 1.00x is a normal week, 2.00x twice the usual interest. Direction is not included.
revenue cagr
Compound annual growth rate of revenue over the period: the smoothed yearly growth rate.
risk unit
Delta times implied volatility: the study's measure of how much risk one put sale carries per dollar of notional. Its sizing rule weights positions by the inverse, so tamer contracts get proportionally more size.
roa
Return on assets: profit as a percent of total assets. How efficiently the company's asset base generates earnings.
roe
Return on equity: profit as a percent of shareholders' equity. How efficiently the company turns owners' capital into earnings.
scenario cases
Bear, base and bull fair values. Base is the consensus; bear and bull re-run the model at the edges of its assumption ranges. Modeled outcomes, not predictions.
sharpe ratio
Return per unit of risk: average return divided by volatility, annualized. Long-only buys the picks; edge-only is long the undervalued and short the overvalued, so the market's move cancels out. For edge-only, 0.5 is respectable, 1 strong.
short interest
The share of freely tradable shares currently sold short: money betting the price falls. Above ~10% is considered heavily shorted.
starting fcf
The free-cash-flow figure the DCF projects forward. We average the last few annual figures rather than trust one trailing-12-month number, which swings with the capital-spending cycle (e.g. a company mid-build-out looks artificially cash-poor).
story premium
The part of the price that demonstrated cash flows don't support. Past roughly double fair value, the gap is priced hope: new products, new markets, a transformation. A price tag, not a prediction the story fails.
street consensus
The average analyst rating across Wall Street coverage of this stock, from 1 (strong buy) to 5 (sell).
strike ladder
The same option strategy at several strikes: nearer the money pays more but gets exercised more often; further away pays less but is safer.
terminal growth
The modest rate cash flow is assumed to grow forever after the forecast period (~2–3%).
terminal value
The value of all cash flows beyond the forecast window, in today's dollars.
the put-selling study
Goldman Sachs Options Research, 'The Art of Put Selling: A 10 year study' (April 2013). Selling 1-month puts priced to collect 1x a stock's monthly FCF yield was its best risk-adjusted strategy: Sharpe 1.35 vs 0.49 for the S&P 500. The 2x and 3x targets earned more income at lower Sharpe.
the wheel
An income cycle: sell cash-secured puts until assigned shares, then sell covered calls on them until they're called away, collecting premium at each step.
thesis
Your one-line reason for the position, saved alongside what the model said on the day you added it, so future-you can judge the decision fairly.
theta
The daily premium decay an option seller collects. Decay accelerates in roughly the last 30–45 days, the sweet spot where sellers earn fastest per day of risk.
trailing eps
Earnings per share over the last 12 months: net profit divided by number of shares.
tranche
A slice of the total amount you plan to invest. Splitting a buy into tranches at falling prices means you buy more the cheaper it gets.
undervalued
The methods estimate the stock is worth more than its price, potentially a bargain.
upside if called
The total return if a covered call is assigned: the premium plus any gain up to the strike, versus today's price.
valuation engine
The engine scores each company on a mature ↔ hypergrowth spectrum and weights the methods to match: cash-flow models for mature businesses, the revenue-driven Growth DCF for growers. Methods that don't fit are left out.
valuation gap
How far the model's fair value sits above or below today's price. A large gap can mean an opportunity or it can mean the model is reading that company badly, and a low-confidence marker is exactly the second case.
volatility risk premium
Options have historically priced in more volatility than stocks went on to realize (about 3 points on average across 2003-2013 in the Goldman Sachs put-selling study). That persistent overpricing is what a put seller is paid to underwrite.
weighted upside
The portfolio's average distance to model fair value, weighted by each position's market value. Positive means the models see your holdings as collectively undervalued.