Robinhood, Twilio (TWLO), Fastly (FSLY) and Selling Puts to enter a stock position

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Thoughts on Robinhood and payment for order flow, Twilio (TWLO), Fastly (FSLY) and Selling Puts to enter a stock position.

Robinhood, Twilio (TWLO), Fastly (FSLY) and Selling Puts to enter a stock position


Podcast Transcript

Hey this is Jeffrey with another edition of Stock Smart, February 18th, 2021 edition. Hope you’re doing well. So, the market continues to unwind a bit as we said it was going to. The S&P 500 oscillator is still overbought or in an overbought conditions. And so I’d expect to see a little more of this unwinding to continue and as we said the danger point will happen when we get out of earnings, which is coming soon. So we’re only a week or two away when earnings kind of slow down and we go into what is generally known as a buyback period where companies will buy back their company stock which keeps the stock kind of at a good level, but I don’t expect to see as many buybacks in this period.

As we have seen in the past when corporate taxes got cut a few years back and with the concern the corporate taxes could be going the wrong direction. I would expect to see not see as many buybacks coming up, so chip shortages continue to be a major issue, Analog Devices came out with earnings yesterday. And they discussed the increasing demand for semiconductors. The company has grown 100%. So that’s pretty amazing, a hundred percent year-over-year because of the demand and adjustments need to take place in this industry. We’ve talked about this on prior episodes, this is becoming a national security issue. And again the issue comes down to this.

We only make 10% of all the semiconductors in the world for the demand in the United States, you know, most of them are coming out of Taiwan and other Asian countries and that’s going to be an issue if we went to essentially a war at some point as semiconductors, we would, all of our military equipment, installs, everything we use for the military is essentially, could be impacted. So we talked about in the past and I’ve seen experts say why don’t Amazon, Facebook, Google, Microsoft get together and build their own semiconductor plant. Well, they just can’t work together. That’s too bad. You know, we are going to see again a lot of cutbacks in production for auto makers because as chips are pretty much in every car.

You use now, Ford, Honda, GM, Nissan, Volkswagen, all are going to have to cut production due to the lack of semiconductor supply. So that’s going to increase the price of semiconductors that’ll increase the price of vehicles. It’ll all flow right down the line. So look for that. So payment for order flow is becoming an issue again. So the house financial committee is going to have their hearing today. Probably nothing will come out of it but the Robinhood Reddit GameStop trade, all the people involved in that are going to be at the hearing today. And one of the issues is this payment for order flows. So Robinhood again does not charge users to use their service. They do have some upgrades within their service work.

They have a small charged monthly fee, but that’s not where their income comes from, most of their income 40-50% of their income comes from payment of order flows and essentially what that is Is when trades are placed on Robinhood they are routed to specific brokerages, one that’s going to be testifying today is Citadel and Citadel handles a lot of the trades of Robinhood. There are a lot of issues here, one, they have a lot of information that they’re getting about trades that are being placed and that’s a benefit to the brokerage. Now, how does the brokerage pay Robinhood? So the brokerage holds a stock in its portfolio and they’re acting as a principle. That means they own it.

So if they own the stock what they do then is they charge a markup to whoever they’re executing the trade to and that’s somewhat at Robinhood so within that mark up then there might be a fractional of a penny or a penny or something that then goes back and is a rebate to Robinhood and that’s essentially how Robinhood gets paid. So that’s where most of their income comes from and we talked about this in a show. We spent a long time kind of explaining the issue but essentially the broker charges a markup on the stock so the difference between the bid and the ask price and that markup goes to the profit of the broker but it also goes to as a rebate or the payment to Robinhood.

So Citadel a primary broker for Robinhood has a lot of access to information in stocks that are being purchased. So that’s a very interesting topic too. So, watch those hearings. I don’t think a lot will come of it. But some information might come out of it, usually in those house hearings they know the front questions, you know, most of the people in the house will know the front line question, but then when the person who’s being deposed your question goes and veers away from the question, generally the house is informed enough in the industry to ask the deeper pressing question. So usually you don’t see a lot that comes from this kind of stuff.


So let’s look at a couple of stocks I talked about yesterday, stock popped big after hours 4 cents per share.

Instead of a loss of $0.08 which was expected so stock popped up 10-12 % yesterday after hours revenue up 548 million vs. 454 was expected. So big. Now, the market is not accepting anything but perfection so Twilio did do well, it held a little bit this morning that 10% 11% beginning of the day, started trading down. Stock now is up about 7% on the day. I think there’s probably going to be if we get a little more unwind in the market there’s probably going to be a better price where you can get in Twilio. Analysts, street analysts, upped the price target on Twilio in the 550 range. It is one of our favorite companies because of their net dollar retention again.

Net dollar retention is when you have a client and you turn them into a client that uses more going forward, so really what it is, is if I’m a client of Twilio’s, I like their services so much that I’m going to continue use them going forward, not only do I continue to use them, but I’m going to use extra products that they sell. Twilio has one of the highest net dollar retentions in the industry, and we like the stock but I think you can see today the 12% it was up yesterday didn’t even hold and now it’s up only about 7%. I would look for that to sell a little bit more over the next couple days. You might be able to get this stock somewhere in the 380 range to 400. If you’re a little patient with it.

Another stock we want to look at, we’re going to look at two today, we’re going to look at Fastly and Fastly, essentially what they do is, they do in an expedient manner, deliver video content, one of their big clients too, by the way, is Tik Tok and they had a strong finish to 2020 said their CEO revenues up 45% year-over-year and some other marketing language about if they continue to deliver on their vision of cloud edge services, and in a sense, if you read the marketing language, it says what does Fastly do, because people don’t know what these companies do. They’re like, oh it’s a cloud company so Fastly essentially, the marketing language, right? Fastly helps people stay better connected with things they love. Again, what does that mean?

Nothing. Fastly’s edge cloud platform enables customers to create great digital experiences quickly securely and reliably by processing, serving and securing our customers’ application as close to their end users as possible at the edge of the internet. Very exciting marketing language that it doesn’t explain anything they do at all, but what they essentially do, if you use Tik Tok I’m not a big Tik Tok person. But you know, you may have kids that are using it or other friends that you know that use it for videos. Essentially, that’s one of their biggest clients. They essentially when people upload content, they are able to deliver it and the video content at a faster speed, with fewer disruptions. With the way they handle the packets and how they stream them. So they have their competitors are Akame, Cloudflare, Amazon’s Cloudfront. They’re doing very well.

It’s an interesting company to watch they got pounded a little bit on earnings they’re down like 12-13% today. This stock could be interesting as a buy somewhere in the 60 range. It looks like support for the stock, it’s just about hitting support now in the 80s, but I think with the market probably selling off, this thing’s going to tumble a little bit further. You may look to be a buyer in between 65 and 75 because that looks like where it’s headed right now, especially as we get the market to continue to sell off and a lot of these growth stocks, these growth tech stocks are selling off right now.

So take a look at Fastly FSLY, and then Twilio TWLO, long-term investment by far, Twilio, love what they’re doing, love their net dollar retention and how what they’re providing to their customers


Question of the day from Franklin, should I sell puts to get into a stock and I want to say thank you again to all the people that are sending in questions. I answer them via email if I can’t cover them on the show and I appreciate the growth of the podcast everyday, exponentially growing. I look at a stats program every time I push it. It’s like a thousand more or a hundred more downloads and uses so really appreciate it. If you have questions, you can send to me at

so again, the question from Franklin is should I sell puts to get into a stock, well guess what? if you do that you’re going to be aligned directly with the master, Warren Buffet, because that’s his favorite way to enter in position and we went over Buffett’s and Berkshire Hathaway’s 13(f) I should say. And we noticed the big increase or the new position in Chevron. And essentially when he sells the put now you have to understand what’s going to happen the dynamics and how this happens. So if you sell a put you make a premium selling the put initially, now, if the stock is put to you, you have to buy it.

So you need to be able to cover that put, so beware if you’re going to sell puts, you are going to be on the hook for buying the stock but Buffett who is going to be an investor, a long-term investor. When they’re entering a position, again, their concept is long-term investing, they are investors, they’re not day traders. So they’re thinking I’m going to be in this position, if it goes down 10% or 5% or 3% over the next two months, they don’t care, they simply want to get into the position at the best price possible and they’ll do that by selling a put, essentially to someone who’s buying protection when the stock comes to the put and the execution price happens, then the stock gets put to them and they own the stock, but initially what they get.

is that premium first for selling the put and again being a long-term investor, they don’t care. So do I like the strategy? I love the strategy. It’s a great way to get into positions, earn a little bit of extra income and as the long-term investor you’ll benefit from both that short-term put premium you earned and from the long-term value being an investor in the company. We didn’t talk about it today yet, but the VIX is up again 10% today getting to in the 23 range. So we are getting a little bit of a frightened in the market as people look to get protection by buying these puts, so hey, thanks again. Another great show, appreciate all the feedback in the comments and we’ll see you again next time on Stock Smart.


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