What are the top 10 Commandments of Options Trading Strategies

Options Trading/Strategies

This blog is about the top 10 Commandments of Options Trading Strategies.

Options trading is a complex and often risky business. However, by following some simple rules, options traders can increase their chances of success while minimizing their losses.

Option strategies are the simultaneous, and often mixed, buying or selling of one or more options that differ in one or more of the options’ variables. Call options, simply known as calls, give the buyer a right to buy a particular stock at that option’s strike price. Conversely, put options, simply known as puts, give the buyer the right to sell a particular stock at the option’s strike price. This is often done to gain exposure to a specific type of opportunity or risk while eliminating other risks as part of a trading strategy. A very straightforward strategy might simply be the buying or selling of a single option; however, option strategies often refer to a combination of simultaneous buying and or selling of options.

Options strategies allow traders to profit from movements in the underlying assets based on market sentiment (i.e., bullish, bearish or neutral). In the case of neutral strategies, they can be further classified into those that are bullish on volatility, measured by the lowercase Greek letter sigma (σ), and those that are bearish on volatility. Traders can also profit off time decay, measured by the uppercase Greek letter theta (Θ), when the stock market has low volatility. The option positions used can be long and/or short positions in calls and puts.

Below are the 10 Commandments of Options Trading:


  1. Do your homework. Before entering into any options trade, make sure you understand the underlying security, as well as the risks and rewards associated with the trade.
  2. Have a plan. Options trading is not a get-rich-quick scheme. Carefully craft a plan that takes into account your investment goals, risk tolerance, and time horizon.
  3. Use stop-loss orders. A stop-loss order is an order to sell an asset when it reaches a certain price point—the point at which the loss on the trade would become too great to bear. By using stop-loss orders, options traders can limit their losses on any given trade.
  4. Let winners run. Once an options trade is profitable, resist the urge to take profits too early. Instead, let the trade run its course and reap the full rewards of a successful trade.
  5. Cut losers short. On the other hand, when an options trade is going against you, don’t be afraid to exit the position and take your losses. Trying to “fight” the market will only lead to further losses.
  6. Manage your risk exposure. One of the most important aspects of successful options trading is managing risk exposure. Make sure you don’t have too much of your portfolio invested in any one security or sector. Diversification is key to mitigating risk in options trading (or any kind of investing).
  7. Use limit orders. A limit order is an order to buy or sell an asset at a specific price—the price at which you are willing to enter into the trade. By using limit orders, options traders can better control their risk exposure and avoid getting caught up in volatile markets.

8 . Be patient . Patience is a virtue in all aspects of life, but it’s especially important in options trading . Don’t enter into trades just because you’re feeling antsy—wait for opportunities that meet your investment criteria . And once you’ve entered into a trade , resist the urge to “trade emotionally” and instead let your original analysis play out . Over-trading is one of the biggest mistakes options traders can make .

9 . Stay disciplined. Like patience, discipline is also key to success in options trading . Once you’ve developed a sound investment strategy , stick to it ! Don’t let emotions influence your trades — if anything , emotion should be kept out of trading altogether . The best way to do this is by developing a clear set of rules that you always follow when making trades . If you can do this , you’ll be well on your way to success as an options trader.

10. Have realistic expectations . Finally, it’s important to have realistic expectations when trading options . Remember : there are no guaranteed winners in options trading ! Every trade involves some degree of risk, so don’t expect to win every single time. If you approach each trade with reasonable expectations and focus on long-term success, however, you’ll be well on your way to becoming a successful options trader


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What are the top 10 Commandments of Options Trading Strategies

Furthermore:

  • Thou shall always take 100% daily gains or 200% all time gains.
  • Do not fall into temptation and buy during the first 30 minutes of market open. (Selling positions is still permitted)
  • Thou shall not buy calls on green days.
  • Thou shall not buy puts on red days.
  • Avoid greed and do not buy consecutive options on 1 company.
  • Give thyself at least 3 weeks time to play the option.
  • End your suffering and sell if down 50% all time on an option play.
  • Avoid gluttony and do not day trade options. (Swing trades allowed)
  • Be fruitful, multiply earnings and sell covered calls if holding any.
  • Celebrate and binge drink after big gains (or losses)
  • Off topic, but relevant – You absolutely need to be doing a 401k or IRA as well as investing in crypto: 401ks and IRAs offer fantastic tax advantages that straight investing does not. Also if you have an employer who matches you are leaving money on the table by not taking advantage of that. It’s foolish. Crypto is great and should definitely be in your portfolio but it should not be your whole portfolio.
    Sources:
    1- WallStreetBets
    2- Wikipedia

Options trading can be complex and risky business, but by following some simple rules traders can increase their chances of success while minimizing losses

Finance and Binance Breaking News – Top Stories

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    I have been following for a year to learn the FIRE ropes and am finally feeling ready for your sage advice and critique. I am 41 and good at budgeting but a well intentioned novice when it comes to investing. My husband (40) is overwhelmed by all things related to money so I am looking for advice on retirement savings and hopefully getting to RE. We have never used a financial advisor and I’m feeling out of my league. I opened Roth accounts thanks to this group’s resource page but do not have a long term strategy. I think my ask is for a review of our current status, suggestions for where to put our excess income, and advice on how to set a target retirement number with young kids. We would love to FIRE by 60, earlier if dreams are possible! Financial background: I learned how to budget using Mint at 30 when we got married with a lot of debt. Until recently, we only focused on investments via work 401ks. We bought a house, had 3 kids, paid credit cards off, and aggressively saved each month. I just made the last payment on $210k in combined student loans that I have worked to pay down over the past 10 years. Money was set aside in HYSA during c*vid forbearance to make a final lump sum payment before resuming in January. Those were huge milestones to save for and accomplish but now we both hit 40 and are feeling like we need to catch up on retirement. Key numbers for consideration: -Gross combined income $500k as of 2023. I changed jobs and nearly doubled my income in the last year so will stay around $200k for a while. He will hopefully have a bump from $300 to 350k in the next year but then we anticipate that to be steady for a while. -3 kids, ranging 4-11 with hopes to give them college support but no 529s set up yet. Couldn’t mentally justify it until my student loans (6.8%) were paid off -We really want to enjoy family time and our jobs require travel so are not ready for an active side hustle at this time -Monthly expenses average $18k. Includes $6k mortgage payment (owe $700 at 4.5% and appraises for $1.1M), two car payments (at 0.9 and 1.9%), childcare, bills, food, and a very fortunate lifestyle. Trying to keep $18k as a monthly spending max even if income changes. -We both max 401k contributions + match and have 30k emergency savings in HYSA -$500/month split to each Roth account but made large contributions last year once student loan savings goal was met Retirement accounts: 1) Profit sharing 401k at $275k (vanguard 2050) and Roth $35k (Schwab) 2) Company 401k $30k (vanguard 2050, Rollover IRA $93k (Schwab 2050), Roth, $37k (Schwab). Former work pension will pay $4k/yr Now that the burden of student loan payments is gone I’m excited to save for a more fun goal but know it can’t be as simple as put it all in the back door Roth account and wait. I will edit if I forgot any key details or you have questions. Thank you in advance for any advice and guidance! Edit to add: Planning basic retirement in MCOL city. College and support for adult kids probably could be added but not sure if we should focus on a certain number for us before saving for them in a 529 or just get that started now? submitted by /u/onlyidiotslivehere [link] [comments]

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  • Financial Advisor Plan - Feedback Wanted
    by /u/loblollyhills (Financial Independence / Retire Early) on February 19, 2024 at 7:50 pm

    I recently received a promotion with a perk for $1000 towards a financial advisor every two years, so I went ahead with it. This is what I was told: Quick About Me: Age: 31, Single Will be married next year, so that'll throw some wrenches into everything. Luckily, they are on board with FIRE and have assets to add into these calcs. FI Number: $1.5 Million Yearly Spending: $45K Target Retirement: 55 years old or earlier Investment Assets: $125K (95K Trad IRA, 16K current work 401K, 10K Roth IRA, 600 brokerage, 3K crypto) - most investments are in VTI and VXUS at a 50/50 split. Current work 401K is in aggressive target date fund. Primary Mortgage: Owe $180K @ 3.75% (forever home) Real Estate Asset (not including primary home): $82,639 Worth: 150K, Owe $67K @ 5% Annual Income: $185K Primary Job: $157K Rental Income: $28K Advisor's Advice that I am definitely doing: Change 401K contribution from 10% to 15% to max out 401K starting this year Getting rid of Vanguard's Portfolio management fees and doing it myself Consolidating a few accounts to Vanguard for Trad IRA, Roth IRA, and Brokerage Start using Backdoor Roth IRA this year Advisor's Advice I am not sure about: Switch from paying off rental property (5% interest) early and pay minimum - invest instead I understand this is right on the line of interest rate, but emotionally I think I want it paid off. Switch all of my holdings to these recommendations (Most right now are 50/50 VTI/VXUS): Work 401K: 44% VINIX, 10% VIEIX, 36% VTIAX, 10% VBTLX Trad IRA: 54% VTI, 27% VEA, 9% VWO, 10% BND Roth IRA: 54% VTI, 27% VEA, 9% VWO, 10% VTEB Max out Backdoor Roth and add 12K to taxable account every year to retire by 55 The Fin Adv has me at 3.5million for retirement (!!)- this seems like overkill, but they did include travel every 2 years, a new car every 15 years, 10K in home improvements every 5 years, and then heavy levels of end of life care for 3 years. The ending portfolio value would be like 10.5 million! Anyways, I am interested to hear everyone's thoughts. submitted by /u/loblollyhills [link] [comments]

  • Books/ videos on FIRE for children?
    by /u/Deathspiral222 (Financial Independence / Retire Early) on February 19, 2024 at 7:26 pm

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  • Hit my first million at 29!
    by /u/compdude420 (Financial Independence / Retire Early) on February 19, 2024 at 5:04 pm

    Hey everyone, I just reached my first million and I'm excited to share my journey with you all! I graduated with a math degree at 23, feeling unsure about my career path. It wasn't until a fantastic professor introduced me to data science that I found my calling. I pursued a master's in computer science, funding it myself through internships I secured along the way. Initially, I felt stuck in my first software internship, envisioning a long career of complex bug-fixing in a corporate cubicle. That's when I stumbled upon the r/personalfinance subreddit, which led me here and introduced me to the concept of FIRE (focusing on the FI part). Podcasts like Bigger Pockets, Dave Ramsey, and the Money Guy show further solidified my goal of financial freedom. Landing my first software engineer job at 25 in October 2019 with a comfortable salary for my city ($105k) spurred me to save aggressively. I got roommates to cut costs and invested the rest in the S&P. Fast forward to marriage and the COVID era, I stumbled upon the subreddit r/overemployed, juggling two remote software jobs, and doubling my income to $320k. My wife (now 28F), even more brilliant, landed a gig at a Faang, and we relocated to Silicon Valley in 2022, where our combined household income soared to around $480k pretax annually. Despite market downturns of 2022, we've stayed the course, maxing out 401ks, Roth IRAs, investing $12k monthly in a brokerage account, and funneling bonuses into our Mega Backdoor Roth. Finally, on February 12th, 2024, we hit a net worth of over $1 million across all accounts, and it feels surreal. I don't feel like we have denied ourselves anything that we truly want. We always discuss budgets for big expenses like our honeymoon in Alaska and our week-long overseas trips to Portugal and Japan. My wife has also treated herself to some designer bags she's been eyeing by budgeting for those expenses and saving up over time. We still enjoy dining out, but we prefer Chick-fil-A and In-N-Out over expensive sit-down restaurants where the cost doesn't justify the quality. We drive a 10-year-old Elantra still in perfect condition with 80k miles on it; we don't see the value in new cars, so it's a cost we've kept very low. No one knows we've come this far in our journey, but it brings me great relief to know that we can slow down a bit and let compounding interest take over. ​ Net Worth Table Year End of year Net Worth Income (Combined Mine + Wife) 2018 $5,345 $20k + $0k (still students) 2019 $34,566 $105k + $50k (graduated late 2019) 2020 $160,782 $135k + $55k (we got married and combined our income!) 2021 $294,779 $140k + $75k 2022 $410,589 $320k + $160k 2023 $919,991 $325k + $160k 2024 (Feb) $1,007,547 $325k + $160k ​ Net Worth Breakdown and Investments Account Value Investments 401ks $267,308 VTSAX, FZROX ROTHS $106,807 VTI, VTSAX 529 $12,118 VTSAX Brokerage $529,317 VTSAX, VTI, VMFXX HSAs $26,944 S&P500 Stock Options (bought) $10,850 Series D and F startups Employer Stock (RSUs) $8,850 FAANG Cash (+Emergency Funds) $45,353 Ally / Schwab ​ The funny thing is, I now actually enjoy my jobs. I'm still overemployed and I deliver on time and keep myself busy at my desk from 9-5. I've learned so much more by doing this that I feel like a much better engineer exposed to different techniques and architectures. If I were to go down to one job, I'm afraid I might get bored. We've shifted our goal to FAT Fire now. We don't have kids yet, but we plan to soon, and from what I've read online, kids cost money, which is fine. I'll work a few more years to give them a good life. But I'm happy to know we've frontloaded our retirements and reached where we are now. Monarch Money yearly graph of our network Networth by year Graph Our next move? Returning to Texas, working remotely, buying our first home with a hefty 50% cash down payment to combat high-interest rates and pay off the mortgage ASAP, then start investing in real estate. This journey has had its moments of self-doubt and stress, but reading others' financial stories here has been a source of inspiration and guidance. submitted by /u/compdude420 [link] [comments]

  • Just Hit 150k NW - Questions & Thoughts
    by /u/Many_Dimension683 (Financial Independence / Retire Early) on February 19, 2024 at 3:08 pm

    I posted on here saying I expected to hit $100k, but I didn’t think $150k would come nearly this fast. I still have anxiety about financial insecurity, so it’s not even close to over yet. I guess this will go away once I’m closer to $500k? My goal for this year is $200k, and I HAVE to celebrate it somehow this time because I didn’t celebrate at all for $100k. I was going to celebrate $150k too, but it feels like an artificial milestone to truly warrant celebration. I’m not sure how to see that. Does anyone else have trouble with actually being happy instead of just looking to the next milestone on the journey? I also moved into a more expensive apartment which sucks in the sense that my rent went up $1k per month but also has been good for my mental health as prior to this I lived in a building infested with rodents. On some level, that makes me more conservative with my spending because I worry that if I ever get laid off I’ll end up losing my progress towards retirement if the job market still sucks (software engineering). Anyways, I guess this post is meaningless and probably isn’t going to get too much traction, but that’s my update. Kind of at a middling point right now, but I feel so grateful to be in this position before 22. I just hope to be consistent and keep making my goals. submitted by /u/Many_Dimension683 [link] [comments]

  • Daily FI discussion thread - Monday, February 19, 2024
    by /u/AutoModerator (Financial Independence / Retire Early) on February 19, 2024 at 10:02 am

    Please use this thread to have discussions which you don't feel warrant a new post to the sub. While the Rules for posting questions on the basics of personal finance/investing topics are relaxed a little bit here, the rules against memes/spam/self-promotion/excessive rudeness/politics still apply! Have a look at the FAQ for this subreddit before posting to see if your question is frequently asked. Since this post does tend to get busy, consider sorting the comments by "new" (instead of "best" or "top") to see the newest posts. submitted by /u/AutoModerator [link] [comments]

  • What success rate are you comfortable with in your simulations?
    by /u/Budget-Tone-8684 (Financial Independence / Retire Early) on February 19, 2024 at 6:50 am

    When I run retirement calculators and do Monte Carlo simulations, I feel like I would be comfortable with a 75% success rate. My reasoning is in down years, I would be tighter and much leaner with my discretionary spending on things like travel and eating out. I'm 57 and do simulations to year 90, and I throw in different numbers to see what I can afford to do in retirement. I don't have kids and would not need to leave money for anyone. If a catastrophic event happened to me and would require me to spend significantly more for health care, I figure I wouldn't make it close to 90 anyway so I'd have less years to support myself. A retirement advisor told me he's comfortable telling people they can retire when it's a 92% success rate. But then there's articles like this that suggest the number can be lower than that: 80% is OK What success rate are you comfortable with and why that number? Please feel free to explain to me why I'm a fool for thinking 75% is a reasonable number. Thanks. submitted by /u/Budget-Tone-8684 [link] [comments]

  • Moronic Monday - February 19, 2024 - Your Weekly Questions Thread
    by /u/AutoModerator (Financial news and views) on February 19, 2024 at 6:02 am

    This is your safe place for questions on financial careers, homework problems and finance in general. No question in the finance domain is unwelcome. Replies are expected to be constructive and civil. Any questions about your personal finances belong in r/PersonalFinance, and career-seekers are encouraged to also visit r/FinancialCareers. submitted by /u/AutoModerator [link] [comments]

  • Rethinking Roth IRA Investment
    by /u/DarkTyphlosion1 (Financial Independence / Retire Early) on February 19, 2024 at 3:22 am

    34, turning 35 in June. Total investments are around 46K, so I know I am behind. I am ignoring my pension until 5 years before retirement, and am going off of Fidelity's retirement guidelines (1xsalary by 30, 3x by 40, etc). I have a Roth IRA with a Fidelity Freedom 2055 TDF , currently around 24K. I pay into a state pension (teacher, CA) and I've been thinking of using my pension to be the bond portion of my portfolio. I contribute to a Vanguard index fund (80/10/10: US, Developed, Emerging, no bonds) and a brokerage through fidelity (FSKAX). I am wondering if I should be more aggressive with my Roth, and maybe go FSKAX in there too instead of the TDF? Should i stay the course? I am fine with the volatility of all stocks since I am another 25-27 years from retirement. submitted by /u/DarkTyphlosion1 [link] [comments]

  • How long did it take you to go from 1mil to 2mil?
    by /u/Substantial_Match268 (Financial Independence / Retire Early) on February 19, 2024 at 2:22 am

    My portfolio in tdf has been oscilating up and down around 1 mil for a lonnnng time, I've heard that the second mil comes really quickly but this is not experience at all, for those with 2 + how long did it take you? What was your portfolio like? submitted by /u/Substantial_Match268 [link] [comments]

  • ACA plans with nationwide networks
    by /u/knocking_wood (Financial Independence / Retire Early) on February 18, 2024 at 9:22 pm

    Hello fellow FIRE folks, I am approaching my number and am starting to look into how to cover health insurance between RE and medicare age. Obviously, I will need to enroll in an ACA plan unless I can qualify for medicaid. I have a list of places that would be ideal for retirement and have started to dig into the details, like housing costs, taxes, and ACA plans. Many of the places on my list, when I check, offer only HMOs and/or local doctor networks, with no options to get non-emergency coverage outside the immediate area. As I am hoping to travel a lot in retirement, making months-long visits to family, etc., a national doctor network like the Blue Card one I have now would be preferable. Are any of you on ACA plans, or know of states/cities that have ACA plans which have national networks? Or am I limited to one small area of the country in retirement unless I want to change my address and get a new plan every time I pull up and go elsewhere? Also, what about Medicaid? Is that a national network or are they all state/county run plans with local networks as well? I have a good chance of qualifying for medicaid in the first few years of RE, especially if markets drop and I need to tap cash reserves to minimize SOR risk. Thanks in advance! submitted by /u/knocking_wood [link] [comments]

  • Too much house?
    by /u/RednBlackEagle (Financial Independence / Retire Early) on February 18, 2024 at 9:18 pm

    Hi there Planning to buy a dream house, but second guessing if it‘s too much… here are some info. * current net worth of around 950k, most of it in liquid equity ETFs (made it by a few lucky punches in crypto and rebalanced accordingly) * sole income of 160k a year (wife is a SAHM at the moment) the house we want to buy costs 1.7m we‘d be putting down roughly 600k because we can‘t get a mortgage higher than 1.1m the interest payment and maintenance costs would be slightly cheaper than the current rent we pay (around 2300.- per month as home owners for a 10yr fixed mortgage, 2400.- as renters) edit: additional info, in Switzerland where I live you can get 10yr fixed mortgage rates for roughly 2%. no amortization needed where we live So basially we‘d tie up around two thirds of or net worth with that (dream) house. I‘m very sure that home prices in that particular area are not going to fall over the next two decades during which we‘d want to live there (children finishing schools). It‘s illiquid. It saves us a little in lower monthly expenses. My wife wants to start working again when the children start going to kindergarten so she‘ll be able to contribute also financially. But we‘d still have over 300k in liquid investments available so basically a good nest egg. What is your opinion? Is this too much house for us? Would you do it? submitted by /u/RednBlackEagle [link] [comments]

  • Morgan Stanley Accused of Duping ECB With Token Job Title, FT Says
    by /u/GammSunBurst (Financial news and views) on February 18, 2024 at 8:18 pm

    Can I be the head of loan trading? submitted by /u/GammSunBurst [link] [comments]

  • Reached 1 mil net worth at 33
    by /u/Fair-Blackberry5963 (Financial Independence / Retire Early) on February 18, 2024 at 6:23 pm

    Hi all, I've been part of this subreddit and other personal finance subreddits for several years and I finally hit 1 million USD net worth as of a few days ago. This has been a goal of mine since I can remember so I'm excited. Single, no kids, MCOL area. I have a girlfriend but she has her own money. I don't know how much she has but I'm thinking it's probably around 400k-500k. The breakdown is: 292k in vang brokerage. Mainly in vigax but some in S&P500 and international 170k 401k. All in S&P500 56k company stock 14k savings 21k HYSA 150k equity in condo 300k equity in house 10k value of car $1,010,000 total Some income info: I started working 10 years ago as a technician making 45k/year. I've progressed to engr making about 140k/year now. It's been a steady increase of salary over the years. Some years larger jumps and some small with only 3-5% raise. I also rent the house to family for an extra $600/month. I max 401k, max 15% ESPP, and add an additional 1k/month to vigax. The ESPP gets reinvested in VIGAX at the end of the 6 months, so it's really closer to 2k/month into VIGAX. That's pretty much it 🙂 It feels good and just wanted to share. I don't think I want to share this with anyone in real life. I saved a large portion of my paycheck. My % of income saved has varied but it's usually about 50-70% of income saved. I'm generally frugal but I still go on vacations 3-4 times a year with my girlfriend or to see my family. Last year my total net worth went up about 140k which was more than that year's income which was interesting. From here, I plan on loosening saving a little and spending less frugally. I'm 33 years old with 1 mill NW so I feel like I earned it. I enjoy my job and it's very stable. My boss is amazing and I have no plans of leaving or switching jobs. I haven't thought too much about the next finance goals. I think it would be reaching 1 mill in stocks alone, but I don't really want to think about it as much. I'm sure it will come soon enough if I keep doing what I'm doing. I'm hoping to be FIRE by 40 yo. Feel free to let me know if anyone has any questions. Thanks for reading and I'm open to any feedback. edit: Sorry for any confusion. Just to add, I also used to rent more rooms in my house and I rented my condo out for several years a few years ago so that increased my income too. submitted by /u/Fair-Blackberry5963 [link] [comments]

  • Coast + sabbatical FIRE?
    by /u/ibidyouadewclaw (Financial Independence / Retire Early) on February 18, 2024 at 6:22 pm

    I am curious about alternatives to the methods of save/wait and coast FIRE. I am familiar with Flamingo FIRE (where you save 1/2 your nest egg and coast until full FIRE) and like these creative approaches where you create a ramp to full FIRE. Curious about this type of scenario and have questions for this group.. Coast/sabbatical FIRE: Say I saved x% of my nest egg and continued to work to cover expenses (maybe save a little, but no sweat if not) and coast to full FIRE, but I took a 1 year sabbatical bank rolled by my nest egg every now and then. Could I theoretically withdraw more than 4% and still see it grow? I am probably oversimplifying the math, but using rough framing: I withdraw 6-8% in a sabbatical year and withdraw 0% for 3 years, how might this impact my nest egg? Is there a calculator for this? Or is there a formula I can apply to test this out? Thanks! submitted by /u/ibidyouadewclaw [link] [comments]

  • Daily FI discussion thread - Sunday, February 18, 2024
    by /u/AutoModerator (Financial Independence / Retire Early) on February 18, 2024 at 10:02 am

    Please use this thread to have discussions which you don't feel warrant a new post to the sub. While the Rules for posting questions on the basics of personal finance/investing topics are relaxed a little bit here, the rules against memes/spam/self-promotion/excessive rudeness/politics still apply! Have a look at the FAQ for this subreddit before posting to see if your question is frequently asked. Since this post does tend to get busy, consider sorting the comments by "new" (instead of "best" or "top") to see the newest posts. submitted by /u/AutoModerator [link] [comments]

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