VALUE: After Hours (S08 E18): How Value Investors Use Options To Generate Income And Buy Stocks At Lower Prices

During their recent episode, Taylor, Carlisle, and Tim Travis discussed How Value Investors Use Options To Generate Income And Buy Stocks At Lower Prices. Here’s an excerpt from the episode:

[Tobias] We’re talking value options. Just in case folks don’t know, do you want to give us a little explanation?

[Tim] Yeah. Basically, we’re value investors, naturally. We’re looking to buy businesses that are trading at large discounts to intrinsic value based on extensive fundamental analysis.

Then, when we’re talking about value options, it’s using simple strategies such as covered calls or cash-secured puts to generate income and reduce risk. We’re limiting ourselves to stocks that are already undervalued. That’s the critical element of this.

It’s value investing. That’s the strategy. The way that we utilise options are just tactics.

For instance, if you like a stock and you would be willing to buy it here, but maybe you’re concerned about the overall market or you just like to make it a little safer even, you might sell a put, a cash-secured put on that stock. That creates a situation where there’s two outcomes, heads or tails. Heads, if the stock’s above that strike price where you sold the put at expiration, you make your return.

We target over 10% annualised almost always. Tails, you end up buying the stock. If the stock’s below your strike price where you sold the put at, you end up owning it.

Now, you have all the upside, the dividends. You could sell covered calls on it, however you want to deal with it from there. That’s the basis of value options.

Interested in Buffett-style options strategies alongside long-term value investing?

Value Options Letter focuses on conservative options strategies around undervalued businesses, including cash-secured puts, covered calls, and disciplined “getting paid to wait” opportunities inspired by Warren Buffett’s approach to risk and valuation.

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Value Options Letter is a research publication and not personalized investment advice.

You can find out more about the VALUE: After Hours Podcast here – VALUE: After Hours Podcast. You can also listen to the podcast on your favorite podcast platforms here:

VALUE: After Hours (S08 E18): How Value Investors Use Options To Generate Income And Buy Stocks At Lower Prices

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