Find the gap.
Time the trade.
Execute clean.

The framework in five steps

The framework runs left to right. Each step has its own job and a clear gate before moving to the next. Skip a step and the trade goes wrong. Do them in order and you compound a real edge.

Why this combination

A value gap is the distance between what a business is worth and what the market is pricing. A positive gap means the business is cheap. A negative gap means it's expensive. Either way, the gap is the edge.

Buying or shorting the share captures the gap, but it ties up capital and exposes you to the full downside. Options spreads let you express the same view with a fraction of the capital and a maximum loss you set in advance. The two ideas reinforce each other. The fundamental work gives you conviction. The options structure gives you discipline.

Skin in the game. No hype. Clean execution. Flow in Practice

How to use this course

Each chapter teaches one step of the framework and shows how I applied it on a real trade. The interactive elements let you play with the numbers yourself. Audio narration runs alongside the key concepts and case studies. You can move through it in one sitting or pause and come back.

Ten questions to anchor

Start every new name with these. If you can't answer them after thirty minutes of reading the 10-K and annual report, the business is unfamiliar enough that you should slow down.

The value chain, made concrete

A value chain is just the sequence of steps that turn raw inputs into a finished product sitting in a customer's hands. Each step adds value. Each step captures some of it as profit. The split between steps is rarely equal.

Some steps are commoditised and capture almost nothing. Others are bottlenecks where one or two players sit on most of the profit pool. If you know where the bottleneck is, you know where the durable margins live.

Case study: the semiconductor value chain

Semiconductors are a textbook case. Six broad steps. Hover or tap each step to see who plays there, what they do, and roughly how much of the industry's value pool the step captures.

Numbers are illustrative for teaching. Real value capture shifts year to year depending on cycle position, supply tightness, and tech transitions. The point is the shape, not the precision: design and fabrication dominate, with equipment as a structural bottleneck because only a handful of firms (ASML, Applied Materials, Lam, TEL, KLA) can supply the tools needed to manufacture at the leading edge.

What this tells you about a name

If a semiconductor name sits in foundry (TSMC), you're underwriting capacity, cycle position and yield ramps. If it sits in equipment (ASML), you're underwriting an oligopoly with extreme switching costs. If it sits in fabless design (Nvidia, AMD), you're underwriting product cycles, talent and competitive position.

The fundamentals you watch and the multiples that matter change completely depending on where in the chain the business sits. That's the lesson from this step. Get the position right before anything else.

Trends matter more than levels

Look at the past three to five years across two simple lines: organic vs inorganic growth (acquisitions can mask weak underlying demand), and gross and operating margins. A company growing the top line via acquisitions while margins drift down is telling you something the headline doesn't.

Different businesses, different metrics

The one-dollar test (ROIC vs WACC)

A business creates value when each dollar it invests becomes worth more than a dollar. That's the test. Two metrics make it concrete:

• ROIC (return on invested capital) is what the business actually earns on the capital it has put to work.
• WACC (weighted average cost of capital) is what that capital costs, blending debt and equity.

When ROIC is above WACC, the business creates value as it grows. When they're equal, growth adds nothing. When ROIC is below WACC, growth actually destroys value. The treadmill analogy is useful: you can speed it up, but if it's pointed the wrong way, you're going backwards faster.

This is the single most important fundamental check for a capital-intensive business. A high-ROIC, growing business is a compounding machine. A low-ROIC business growing fast is destroying capital while the headline still looks impressive.

Watch for distortions

Reported numbers can lie temporarily. Strip out currency translation effects (especially relevant for European firms reporting in USD), one-off restructuring charges, lawsuit settlements, and large M&A. For example ON Holdings in 2025 is a good example: It reported net income fell year on year despite 30% revenue growth, almost entirely because of a CHF 173m FX revaluation loss.

Three lenses, one decision

I use three lenses together. Each one catches a different kind of mispricing.

Lens 01 · Valuation multiples

Multiples are the most common comparison tool because they collapse a lot of information into a single number. The trap is picking the wrong one. P/E is the default and works for most consumer and industrial businesses. It breaks down for real estate, mining, or asset-heavy financials where the asset base matters more than current earnings. There you want price-to-book or price-to-cash-flow.

Always use at least two. P/E plus EV/EBITDA. Or P/B plus dividend yield. A divergence between two multiples is itself a signal worth investigating.

Lens 02 · Sum of the parts

Very few businesses are pure plays. Most operate in several markets with different competitors and different economics. Companies disclose this in the segment notes of their 10-K (they aren't obliged to, but most do). When the segments look very different from each other, valuing the whole company against a single peer group creates a distortion.

Sum of the parts fixes that. You value each segment against its own appropriate peer group, then add them up. It's the technique activist funds use to argue for spin-offs, because the parts often add up to more than the whole.

The mechanics behind the chart: DELL trades at roughly 8.8x EV/EBITDA on a consolidated basis. The enterprise infrastructure peer median is around 11.5x. HP trades closer to 6x. Applying segment-appropriate multiples to ISG and CSG separately gives a fair enterprise value 58% above where DELL trades. Convert that back to share price and you get $205 versus the market's $117.

This is the kind of structural mispricing that activist funds chase, and one of three valuation arguments that supported the bullish DELL thesis in early 2026.

Lens 03 · Implied perpetual growth rate

A standard DCF projects every line item out for ten years, picks a terminal growth rate, and spits out a price. It's a precise-looking exercise built on dozens of guesses. I don't use it that way.

The better use of cash flow modelling is to reverse it. Start from the price the market is currently paying. Hold the cost of capital constant. Solve for the perpetual growth rate that justifies that price. That single number tells you what the market is implicitly assuming about the future.

Enterprise Value = NOPAT × (1 + g) / (WACC − g)
Gordon growth model · solving for g gives the market's implied perpetual growth rate

Once you have g, compare it with reality. If the implied growth rate is below long-term GDP growth (3 to 4%) and the business is healthy and growing at least at the industry rate, that's a strong positive value gap. If the implied rate is well above what any business has sustained in perpetuity, that's a strong negative gap.

Read the gauge like this. Below 3%, the market is pricing growth slower than the economy, which for a healthy growing business signals a strong positive gap. Between 3% and 6% is fair territory for most quality compounders. Above 6%, the price is leaning on aggressive assumptions and the business has to deliver to hold its multiple. Above 9%, you're in pure-narrative pricing.

The lens is most useful when you cross-check it. ONON's reverse DCF at 6.7% matches what its peer-multiple analysis suggests (slightly cheap on growth-adjusted P/E). Two independent lenses agreeing gives you confidence. Two lenses disagreeing is itself useful — it tells you to dig deeper before committing.

No timing signals = no trade

The discipline here is the same as in the rest of the framework. If the gap is there but the timing signals are all negative, you don't force the trade. Options decay every day. Paying time premium for a trade that's not yet ready is one of the most common ways retail traders bleed capital.

Walking away costs nothing. The DELL case in the project files is a good example: the gap was clear, but options volatility was elevated ahead of earnings and bid-ask spreads had widened. I stood down and waited. Volatility eventually normalised and the entry became cleaner.

Bull call spread (for positive value gaps)

You buy a call at a lower strike. You sell a call at a higher strike. Same expiry. The premium you pay on the lower call is partly offset by the premium you collect on the higher one. Net debit at entry equals your maximum theoretical loss. Spread width minus debit equals the maximum theoretical gain.

This is the trade I use for positive value gaps where I expect the stock to rerate toward fair value over the next two to three months.

We do not hold the spread to expiry. The plan is to exit when the thesis plays out, well before the options expire. Realised P&L is driven by the spread's mark-to-market value on the day you close the trade, not by where the stock sits at expiry.

The chart below shows the at-expiry payoff envelope. Think of it as the theoretical floor and ceiling. In practice, the trade is closed earlier, somewhere along the path between those bounds. Drag the strikes to see how the envelope changes.

Bear put spread (for negative value gaps)

Mirror image. You buy a put at a higher strike. You sell a put at a lower strike. Net debit is the maximum theoretical loss. Spread width minus debit is the maximum theoretical gain. This is how I express a negative value gap thesis, a business priced for perfection where the market has not yet adjusted to weaker fundamentals.

Same exit logic as the bull call spread. Close the trade on its mark-to-market value when the thesis plays out, not at expiry.

When to exit

Four exit triggers govern every spread. Whichever fires first ends the trade. The point is to take the trade off the table when one of these conditions is met, not to wait for expiry.

Three checks before clicking buy

Before placing any spread, three execution parameters need to pass. None of them are negotiable.

These three sit alongside a written thesis, a defined catalyst, an invalidation level, and a position size that caps your loss at no more than a few percent of trading capital. The execution guide in the FVI library goes through each in detail.

The framework recap

Common pitfalls

• Skipping value chain analysis. If you don't know where in the chain the business sits, you'll pick the wrong peers and the wrong metrics.
• Relying on one valuation lens. Single-lens analysis catches one kind of mispricing. Three-lens analysis catches more and protects you from false positives.
• Trading before timing signals confirm. A great thesis at the wrong moment is a losing trade. Options decay every day.
• Forcing illiquid strikes. Low open interest means wide spreads. Wide spreads mean you give back 10%+ of the trade to market makers before the underlying moves.
• Sizing too big. No single trade should risk more than a few percent of trading capital. Sizing is what keeps you in the game across losing streaks.

Where to go from here

The case studies in the Flow Value Investing library work through the framework end to end on real names. DELL, ONON, DECK, CRWD, and others. Each one shows the gap analysis, the timing decision, and the options trade or the decision to stand down.

The Option Strategy Execution Guide goes deeper on the mechanics of strikes, expiry selection, IV regime adjustments, and the go/no-go checklist before placing the order.

Practice is the strategy. If you cannot do it consistently, it is not your strategy. Flow in Practice