Buying Stock at a Discount


The easiest way to invest in equities is with a mutual fund. The surest way to match market performance is to use index funds. Then there are times we get the urge to do things the hard way.

Of all investment classes the broad market has performed best. The stock market, for all its fits and starts, has outperformed over long periods of time without the need or risks of leverage to accomplish the goal.

A simple strategy of consistent investing in index funds has plenty of adherents in the FIRE* demographic. The reason for this is simple: it works! Depending on where in the market cycle you start, a decade to decade and a half if all that’s needed to fund your retirement. Start saving half you gross income at age twenty and by 35 you are ready to either retire or carve your own path in life.

The plethora of blogs in this demographic are a testament to the successful strategy of wealth building with index funds. What is often forgotten is that you are investing in real businesses even when using an index fund. And it’s business, not stocks, which create the real wealth.

If it takes a decade or so to create an adequate net worth to retire, business can get you there in a few years.

Buying an index fund is a sure way to enjoy average growth. Average is good in this case because the economy grows, always has grown and will continue growing into the foreseeable future. As productivity and other advances and new technology come online you are in for the ride because your index fund owns just about every winner in the crowd. You also own old school companies still growing and/or throwing off massive dividends. There are also a few stinkers in the crowd as some former success stories are headed for the exit.

With this in mind, intelligent people sometimes want to strike out on their own with a small percentage of their portfolio. If you possess the mind of an accountant and the discipline of a saint you can ferret out opportunities with the potential of outperforming the market.

And armed with this knowledge it becomes clear the pickings are slim when the market has been straight up for eight years. There are plenty of great companies, but most sell for a dear price, unworthy of additional investment unless available at some future date at a better price.

A Clear View of the Future

Exotic securities have been devised over the years to hedge various investments. These very same tools are easily used to gamble, ah, speculate.

Farmers have had futures contracts available to them since before the beginning of time. It makes sense for a farmer to use futures to protect their investment in an uncertain world. Agricultural products have thin margins and farmers know it. A small shift in commodity prices between planting and harvest can destroy a farm financially.

To limit the risk of prices changing, a farmer can sell his future corn crop in advance. It works like this: A farmer probably knows his input costs of fuel, seeds and fertilizer. He also knows if it makes sense to drill the seeds into the ground in the first place. If the input costs are more than he can expect at harvest he either needs to allow fields to lay fallow, plant a different crop or hope to Mother Mary prices turn around.

Even if the farmer sees current corn prices are higher than his input costs there are no guarantees prices will stay favorable. A drought can devastate his crop and prices tend to decline into harvest as more of the commodity becomes available.

To limit risk the farmer can sell his expected corn crop coming off the field in autumn before he even plants in spring! If prices go up the farmer loses on his hedge, but wins on the actual crop. In prices decline he loses on the actual crop, but profits from the futures hedge.

Futures contracts are a necessary part of farm living. Without the ability to hedge farmers are one, or at best two, bad years away from bankruptcy.

The same tools can be applied to almost any asset.

You Have Two Options

Before we start this part of the discussion I want to give a warning. This is more a case of do what I say, not what I do. I use some very advanced methods when protecting my investments and when buying them. This discussion is on options. I do NOT recommend options except to the most knowledgeable and astute investor! Consider the remainder of this post informational only.

If you are unfamiliar with options and how they work, here is an article on Investopedia and another from NotWallStreet. Do NOT let anyone, me, a broker, a TV talking head or internet article, talk you into options unless you know what you are doing. You don’t.

There are two options in the world: calls and puts. Like futures for a farmer, an investor can hedge her investments against the price on some future date. The market has been rallying hard for years. If you are worried about the market declining, you can sell your stocks or index funds and pay taxes on the realized gains or write covered calls or buy puts. Each action has its own associated risk.

Selling causes tax issues, but at least the damage is known. Covered calls only provide limited protection and if the market keeps climbing you are likely to lose out on future gains. A covered call might provide a few points in premium only. If the market decline is larger you will suffer paper loses. Buying a protective put is a cheap hedge and frequently the preferable route. If the market declines you gain on the put option; if the market rises or stagnates your only risk (loss) is the put premium.

But that is not what I use options for. I’d buy a LEAP call option on the S&P 500 if I got the same deal Warren Buffett did nearly a decade ago. (Buffett paid a small premium for an at-the-money S&P 500 index call with a 10-year time frame with the market off nearly 50%. I wanted the same deal but they showed me the door.)

I rarely use covered calls to generate premiums as the market likes to steal your stock when you do. I don’t speculate or gamble with options either.

The one time I love to use options is in a market like we’ve had the last several years. The market has been doing well for a long time and when I’m looking to buy an individual stock I sometimes use options. (You can use the same strategy with index funds, but I never do. I still invest excess capital into the index fund and wait like a good boy.)

The problem with today’s market is good companies are selling at too high a price. Now if I could pick up some Facebook (FB) at 100 or Apple (AAPL) at 140 I’d be excited. (FB last closed at 179 and AAPL at 170.15.)

Most stocks don’t have much of a premium for short-dated options way out-of-the-money. Some stocks do. The best way to show you how I spike my returns using options is to list what I have in my current portfolio.

First, when I sell naked puts I consider them long-term buy orders in companies I want to own more of when the price is too high. If the price comes down enough the options will execute and I’ll get my extra shares. If the stock doesn’t drop enough or advances I keep the premiums. I never use this strategy in a down market as I can just buy the stock without waiting.

Here are my current naked put holdings:


Company             Sold Date             # Sold    Option Date       Strike    Sold $    Current $

AAPL                     11/15/17              -2            Jun 15, 18            140         3.04        2.87

FB                           6/9/17                   -4            Dec15, 17             120         2.05        .01

FB                           6/29/17                -2            Jun 15, 18            100         2.00        .30

MO                        7/31/17                -2            Jan 18, 19             65           8.03        5.90

NFLX                      5/25/17                -2            Dec 15, 17            130         4.05        .05

PM                         10/30/17              -2            Jan 18, 19             90           4.33        5.25

TSLA                      5/25/17                -1            Dec 15, 17            220         6.68        .26


If every stock declined to the strike price or lower I would be on the hook to buy $175,000 of stock! As you can see most transactions will expire worthless before the end of the year and I keep the premiums.

MO is the outlier. Option premiums are low for MO so I sold a LEAP out in January of 2019. I also bought more MO in the low 60s recently.

I am willing to buy each one of these stocks at the strike price should the market decline to those levels and probably will even without the naked puts.


There are two risks to consider. The first requires self control. You only sell naked puts in the amount you have current funds available to buy.

The second risk you can’t control. If the story changes and the stock crashes, you will end up buying back the put at a loss or owning shares in a company where the story is no longer compelling.

Simply put (pun intended), there is no risk free investment. Just wanted you to understand the two risks in this scenario.

The Cash Hoard and the Friends I Keep

Whenever I mention I use this strategy people ask why I don’t stay 100% invested all the time. My answer is, for the same reason Warren Buffett’s Berkshire Hathaway has around $100 billion in cash currently.

The truth is I like to keep my powder dry. I never have 100% of my money invested. There are a few nickels in my pocket when I walk around town to avoid vagrancy charges. As a business owner I need liquid working capital so I always have something tucked between the mattresses. I also like keeping some money available in case an unbelievable opportunity arises.

You do the same thing on a smaller scale. You might have an emergency fund. If so, it’s probably earning a whopping 1% while it waits for work to arrive.

Another brutal truth to why I keep a larger amount of cash laying around is because I am different than you. The higher your net worth the more liquid cash you will tend to accumulate during certain times of the year and during market overvaluations. I consider the current market overvalued.

Does my opinion of the market conditions change my core investing style? No! I max out all my retirement accounts (Mrs. Accountant’s too) and put it all in index funds. Those suckers keep getting filled.

When it comes to individual stocks I need to build a reserve to buy companies when they are on sale.

I’m not alone in using this strategy to generate income. Back in the 90s Intel (INTC) sold massive quantities of put options with the intention of using a down market to buy back shares. (I’m not sure if INTC still does this or not.)

Over the years INTC had such a large income stream from the naked puts they listed the income separately in their earnings reports and annual report. INTC’s intention was to structure the naked puts to force execution so they could buy back the stock and keep the premium. There was serious money in this for INTC.

I owned INTC for a few years back then. It wasn’t my favorite investment, but it had potential until my research discovered a terrible truth. I went back and reviewed over a decade of financials for INTC and discovered they bought back more stock than their entire earning over the previous decade and still had MORE shares outstanding. Such is the world (and risk to shareholders) of employee incentive stock option.

We’ll leave that discussion for another day.

A Steaming Pile of Schmoo

This was harder than I thought. Novices will be left bewildered and experts already understand the program. How do you present a complex idea like options in under 2,000 words? You don’t! I feel like I left a mish-mash of information. The information is accurate! The issue is communication. Did I get my message across?

There is so much more to this discussion than I could pack into one post. Naked puts are a viable investment strategy if used in a limited fashion, even if INTC used it to the nth degree.

Options in and of themselves are not bad. They do have the potential to cause great harm however and they are easy to abuse. Consider options the opioids of your investment portfolio. They reduce pain at first, but can do lasting damage when abused.

So why do I do it? Because if the market doesn’t decline I keep over $6,200 in premiums. The extra cash, added to an already growing stash, will come in handy when the market does decline and some companies become a steal.

Or I might be an addict beyond help. You decide.


* Financial independence, retire early.


Keith Taxguy


  1. susie liberatore on November 20, 2017 at 8:24 am

    I found this to be so interesting thanks for sharing I have to bookmark this and come back to it.

  2. Erica on November 20, 2017 at 9:08 am

    Back in the day I was an options market maker. I saw the transition from fractions to decimals, and watched Enron, 9/11, and some other big events from the trading floor.

    I don’t recall hearing about this use of writing puts during my days. We called them airplane puts, because they were the sort of thing someone could sell a ton of to make some money but they might need to be at the airport with cash and a passport in hand to make it to their new life when trading closed on expiration day in case the puts closed in the money.

    I definitely look forward to putting naked puts to work in our portfolio!

    • Keith Schroeder on November 20, 2017 at 9:17 am

      Erica, I never expected a market maker in options to be reading my blog! I’m very happy.

      Please remember my warning. It’s easier on the passport and travel plans. Using naked puts as a proxy for a buy order can be worthwhile as long as you remember the risks. No speculation! You must have the cash on hand to buy if the opportunity arises. Deep down, I always want my puts to be called. If AAPL drops to 140 I’d be a buyer anyway.

      • Erica on November 20, 2017 at 9:50 am

        Keith, I was a Sell-Side analyst for a decade plus as well. I think my background makes your perspective even more interesting.

        Airplane puts, as I understood them, were mostly practiced by people living a high risk lifestyle both financially and often chemically. That’s not my cup of tea.

        I may go for the risk of selling covered calls on some shares we hold with an already established sell price, but that’s about as high risk as I plan to take my real life options experience. My many years in the industry have allowed me to not be sad when a stock I sell goes higher, or when a stock I buy on sale goes lower. I’ve had the experience of both in recent months! Anyone who can’t handle their $5 stock going down to $3 in the days following their buy, so long as fundamentals remain intact, really has no business investing in that kind of stock. And anyone who is going to kick themselves taking a gain that doesn’t pick the 52 week high also should stay out of individual equities. You do a good job of getting that point across.

        Having a nice pile of safe cash lets me take the ups and downs in stride, as well as wait for discounts on investments. It is just amazing the peace of mind that comes from having reserves, but I’m preaching to the choir here!

        • Colt on November 21, 2017 at 9:07 am

          Erica – selling ATM puts and initiating CCs have the exact same risk profile, in some cases are almost the same play if you are selling 1 strike ITM puts as well. Selling puts is actually less risky than owning the stock outright (assuming cash secured) – with less volatility as well.

      • Joe on November 21, 2017 at 7:09 am

        Might be best to call them “cash-secured” puts instead of naked. In most financial contexts naked means you don’t have the thing you’ve promised to deliver (for example naked calls) , and so losses are unlimited. Having the full amount of cash on hand that you would need if the puts are exercised means you are “covered.”

        If you didn’t have this cash, and the underlying tanked, you’d want to skip town because your broker was asking for money you don’t have, hence the term “airplane puts.” But with a cash-secured put, your account balance can never go below zero, so no reason to flee the country.

        • Colt on November 21, 2017 at 9:55 am

          Joe – another thing to remember as well – when offering out the position, you always have the option to close the trade before expiration as well. We are typically selling around 45-60dte puts on indexes and you can inch close to 1.3-1.5x notional and still be comfortable with the “risk”. Try using 2x-3x credit received as a stop-loss, assuming you are not selling the junk that is extremely OTM.

          Around 21-25 dte, we’re looking to roll your shorts to the next 45-60 dte window again, thus further reducing your basis on whatever underlying it is. By rolling early, you are able to escape much of the gamma risk that come with being short gamma.

  3. Jeff on November 20, 2017 at 10:08 am

    Not an options question, but since we’re discussing stocks, etc… I’m curious what your thoughts are on Amazon and it’s stock price (I’m a total market index investor, and I do not own Amazon). I *love* Amazon the company, and I give it a ton of business. A ton! I do not understand the P/E ratio and why the stock is SO high. I just looked up revenue for last year, and I was stunned to see Walmart STILL does 3X what Amazon does. I thought by now they were probably equal. Amazon has a P/E of ~285 and Walmart is ~23. Crazy P/E for Amazon!

    I use Amazon for everything, and I don’t mind paying a small premium (let’s say 10% more) for home delivery. But as broke as most people are, I don’t believe people in large masses will ever stop shopping with Walmart and move to Amazon. And that’s pretty much what would need to happen for Amazon to be worth that stock value — is for Walmart to close every store and everyone buy from Amazon. That will never happen in my opinion.

    Your thoughts?

    • Keith Schroeder on November 20, 2017 at 11:31 am

      Like you, Jeff, I love what Amazon offers. Regardless how big they grow the business I will not buy the stock at these levels. There is no real margin of safety. The sad part is I thought of buying Amazon back in the 1990s because I read so much and love books. At least that decision made it easier for me since I don’t have to deal with all that pesky money.

      I did buy Apple in the past few weeks and avoided it for the same reasons. If Amazon trades at a price I think provides a margin of safety I’ll consider purchasing. I love Amazon’s services, but not at any price. Besides, I only need a handful of good ideas to be rich. Many will slip by unnoticed. I’m okay with that.

  4. Doug @ The-Military-Guide on November 20, 2017 at 11:05 am

    Thanks for tackling such a complex topic, Keith!

    We use covered calls for rebalancing, because otherwise our emotions get in the way and lead to protracted debates.

    When our rebalancing criteria are triggered (and they’re very loose) then we used to dither and dawdle in the hopes that we’d earn a few more bucks before selling. By selling the covered call on the shares we’d otherwise sell for rebalancing, we’d earn a little money instead of having the debate. If we get called away, great, we were supposed to do that anyway. What usually happened is that the volatility would settle down and the call would expire worthless. No debates, a little premium money, and (most importantly) domestic harmony.

    It works the same way with selling naked puts. You feel like an idiot when you’re buying an undervalued index ETF (which market sentiment claims is clearly is going to go to zero anyway), but the naked put at least gives you a bit of a discount. More importantly, you’ve brought your asset allocation back into line and can go back to living your life without worrying about market volatility.

    For us, it works out to one or two trades per year at most.

    • Keith Schroeder on November 20, 2017 at 11:36 am

      I really expected negative blow-back on this post, Doug. It never materialized. (Now that I’ve opened my mouth . . . )

      You’re using options in an intelligent manner. As long as people don’t gamble with options (Com’on IBM!!!! Ride, baby, ride!!!) they are powerful tools to manage an account. I seldom use covered calls (at least recently) as I tend to sell if I think there is a reason to sell my ownership. The naked puts are fun (and profitable). If the stock doesn’t decline to my buying point I keep the premium and if it does I get to own a piece of a business I wanted to own.

      Thanks for sharing your investing experiences, Doug.

  5. Mike @ Balanced Dividends on November 20, 2017 at 12:53 pm

    “And it’s business, not stocks, which create the real wealth.”

    Great point, Keith. Many, including myself admittedly, often forget this distinction.

    Re: options, I do not use them personally, but I see and work with them professionally (more lately, indirectly though). On your comment around explaining options under under 2,000 – it’s hard to do perhaps without a chart or visual representation of the “game of opposites” which I consider options to be in my head.

    Regardless of the explanation, which I thought you did well, the most important part of the post (as with my or any other respective individual’s comments) is that this should be informational only. As you highlighted, options can be extremely, extremely risky.

    • Keith Schroeder on November 20, 2017 at 1:11 pm

      Maybe I did communicate my message, Mike.

  6. Sue on November 20, 2017 at 1:34 pm

    Any thoughts on leveraged Index ETF’S?

    • Keith Schroeder on November 20, 2017 at 1:51 pm

      I’m not a fan of leverage, Sue. Leverage ETFs generally use futures contracts to leverage the market and have a poor performance record. Now unleveraged ETFs appeal to me, especially the index ones.

      Generally, leverage means more risk. Most people are not sophisticated enough investors to play in the leveraged arena. Even the experts get burned as we see when the government needs to bail them out when the economy is at risk. The government ain’t bail’in me out so I just say no.

  7. Jason@WinningPersonalFinance on November 20, 2017 at 1:44 pm

    Thanks for sharing Keith. I don’t play with options myself right now. I have much more reading to do before I’d even consider trying it. The highlight of the little bit that I know is that options are a zero-sum game. The buyer wins the seller loses or visa versa. It’s not an “always goes up” kind of thing. Most option investors are sophisticated. In order to win against them, you really need to know what you are doing. For now, I think my time is better focused elsewhere. I can see how they have a place in certain portfolios though.

    • Keith Schroeder on November 20, 2017 at 1:54 pm

      Jason, options are worse than a zero-sum game when you consider the commissions and bid-ask spread. Research and learning is good. If you learn about options while never trading one you are still okay. Learning about options helps you make other financial decisions too. For example: if an investment is using an option-like device you’ll recognize it and run away like the wind.

  8. sendaiben on November 20, 2017 at 7:37 pm

    Thanks for writing this. It was interesting, but I decided to put it in my ‘too hard/don’t understand’ box. I may come back to it later, when I am rich 😉

  9. Josh on November 20, 2017 at 8:41 pm


    It’s refreshing to begin to see some more advanced investing information being communicated to this community. Index funds are an efficient way to invest in the market, yet that also means that they efficiently invest in overvalued markets (efficiently speculating essentially, based on historic valuation). All returns above the rate of earnings growth, are inherently speculative returns.

    One note that many may not realize about options are that you must buy them in round lots (100’s). So you must make large bets on options. To place covered calls, you have to own 100 shares of a stock.

    What about a strategy of taking a portion of your index fund monthly investment, and overweighting a company that you have determined to be undervalued? This can have the effect of de-risking your index funds, by lowering the overall P/E of the portfolio, and hopefully increase its cash yield with a larger dividend. It’s a simpler approach that using options to risk-adjust, and is rather rational.

    • Financial Rookie on November 21, 2017 at 9:42 am

      I agree, the more advanced information is really interesting to read. I think my favorite part about this realm is that I don’t quite understand everything yet and that’s what makes me dig further. Kind of like how I’m not great at advanced math but I love physics and astronomy. Keeps my brain on its toes.

      “What about a strategy of taking a portion of your index fund monthly investment, and overweighting a company that you have determined to be undervalued? This can have the effect of de-risking your index funds, by lowering the overall P/E of the portfolio, and hopefully increase its cash yield with a larger dividend.”
      I have done something similar in that I have used my Roth to counter the sector weight of my 457 which is exclusively VFIAX. It is heavier on the utilities, REITs, defensive and material sectors since they are under weighted in the S&P 500. Also has about a .5 higher yield which is nice!

      Keith – one of my favorite things about your blog is the comments section. Your posts offer great content, then you comment sections provide even more top notch information due to the reader base contributing to the conversation. Keeps me coming back.

  10. Josh on November 20, 2017 at 8:43 pm

    Another note is that MO is already in the $65 range. Why not just buy it now, and have the benefit of pocketing the dividends vs. taking a risk with the options?

    • Keith Schroeder on November 20, 2017 at 9:01 pm

      Josh, in my previous post I mentioned I bought more MO in the low 60s. There is no risk with my naked puts in MO since I am willing to own the stock should it remain under 65. I also pocketed over $8 per share in premiums. The reason for the puts over buying more shares involves an extremely complex tax maneuver. I have an opportunity to pocket the premium tax-free. (It doesn’t involve tax-loss carryforwards or tax loss harvesting.) If my heart can take I may write a series of post describing the strategy I’m using.

      There are reasons to use options intelligently. That’s why I started the post discussing futures and how they relate to farmers. Super wealthy people don’t speculate in options, but do use options as a tool to control risk.

      • Erica on November 20, 2017 at 9:22 pm

        OOOH! Tell us more! Now that I no longer work for a broker/dealer I can finally trade freely. I am definitely interested in the tax strategy. Lots of income streams, with as many tax advantages as possible is my goal.

        • Financial Rookie on November 21, 2017 at 9:44 am


  11. Keith H. on November 21, 2017 at 7:59 am

    I’ve been trading options regularly for over three years. I only sell credit spreads and iron condors with 80+% chances of success on broad based indexes. My goal is to make regular small profits each month and take advantage of the Section 1256 contracts to keep more of it at tax time. I work through a broker that charges the lowest fees in the industry. Even with a disciplined approach, I’m still loosing money. One bad trade negates 15 good ones. Fees eat away most of my gains and limit my ability to trade. Also, my brokers tax forms and my tax software have never once worked together to properly apply the Section 1256 benefits. I know there has got to be a better way to do this, unless the whole industry is a scam. I’ve considered selling naked puts, but I don’t really want the individual stocks tying up my cash until their share price recovers. Have you ever worked with someone who was consistently making money with options using any strategies other than selling naked puts?

    • Keith Schroeder on November 21, 2017 at 8:15 am

      Keith, I don’t want readers using options the way you are. You’re speculating and getting traditional speculation results in options. I’ve seen too many clients lose their ass trading options the way you are.

      Without more facts I might be wrong, but I don’t think you qualify under Section 1256 and even if you did it wouldn’t matter since your’re losing money. The advantage of 1256 is the deemed LTCG portion of the profit.

      Please don’t “try” naked puts. You’ll get killed! Read what I said in the post. I research until I find a company selling at a reasonable price with an adequate margin of safety. I sell naked puts as de facto buy orders, capturing premiums. When options are used this way I’ve seen many people make consistent money. But if you just write a naked put to grab some premium without the cash to buy the stock outright you’ll end up on margin call eventually and be wiped out. So don’t do it!

  12. Rawlings on November 21, 2017 at 11:41 am

    Great post here. I learn a lot that i can use to restrategize to acquire more stock and plan to spread out the stock buying and control the risk to diversify.

  13. Pieter on November 23, 2017 at 9:33 am

    Nice post

    One strategy I have been testing is buying deep in the money leap options using harry brownes permanent portfolio for a small proportion of my portfolio as a leveraged bet. The strategy has been showing steady returns for the past few years, profits skimmed and pumped into the traditional index funds. The reasons I like it:

    1. The portfolio is already balanced for most economic cycles
    2. Options are atleast 2 standard deviations away from the strike
    3. No margin call risk, although the original capital is at risk
    4. No margin interest costs so enjoy a bit of free leverage (although you pay for it in wide spreads)

    I have not yet seen how the strategy performs in a broad based market decline, so keeping allocations small.

    Would be keen to get your thoughts on the experiment Keith, perhaps I have overlooked other risks.

  14. JOHN MARINO on November 24, 2017 at 7:33 am

    I just found this blog and I love it! So, your strategy is to sell puts in an ‘up’ market. I think this makes sense. On the flip side, does this mean you sell calls in a ‘down’ market?

    • Keith Schroeder on November 24, 2017 at 7:43 am

      If you sell calls in a down market you are sure to get killed! When the market starts to rally the calls will go very, very bad. Selling puts in an up market works because I want to generate income while I’m willing to buy the stock if it declines to the level of the put. Do you really want to sell your stock in a down market? Be careful with options, John. They can be confusing and are not forgiving.

  15. Wayne Whitworth on November 29, 2017 at 10:24 pm

    Great article Keith! I trade options in one of my accounts and really enjoy the challenge plus it keeps me engaged. I use a brokerage out of Chicago called Tastyworks that charges around a dollar per contract and 0$ on exit. It’s practically free to trade options using their platform plus it’s design is quite good. Tom and his team developed the options trading platform for TDAmeritrade (Think or Swim). Last year, they decided to venture off on their own and start Tastyworks. They also operate a daily program from 8 to 3 that’s very educational. Anyway, I read your article last night and today they produced a 20 minute segment called “Efficient Use of Time” dealing with a long term put option verses a short term put option. Here’s the link…

    I hope you find it useful.


  16. Travis Wilkerson on December 3, 2017 at 3:08 am

    Keith I saw you at Fincon17, but never got the chance to meet you. I’ve been trading options for over 15 years, but am new to the FIRE community. It’s refreshing to see at least one person in the community that is open minded towards options. Thanks for educating the community about options as well warning against the dangers! I look forward to reading more from you. Regards, Travis

    P.S. Everyone should read your “How to Lose a Million Dollars in a Day” post as many recent retirees will soon be in a world of hurt and they need to be mentally prepared.

    • Wayne Whitworth on December 3, 2017 at 8:48 pm

      Hey Travis…thanks for the comment. I wrote the previous comment regarding options. What are a couple of your main strategies?

      • Travis Wilkerson on December 4, 2017 at 7:44 pm

        Hi Wayne, I’m a bit of a hybrid and my core strategy is simply Buy & Hold a broad based index plus a conservative option strategy (like the one Kieth outlined above). I’m only looking to add maybe 3-5% each year as it really adds up over the years. Thanks for the question.

  17. Dale on December 3, 2017 at 10:43 pm

    I’ve never traded an option and never will, but it was interesting to read that you believe in “keeping some powder dry.” That’s a topic I haven’t seen people write much about, and it’s interesting to read your thoughts. My strategy is to have between 5% and 0% of my retirement savings in cash depending on the market: 5% when the marking is setting new highs (like now), 2.5% when the market has gone down 10%, and 0% when the market has gone down 20%. In this unrelenting up market, having 5% in cash has surely cost me a few bucks. But when the market turns, I’ll be following a program to hit the “buy” button when others might panic and hit the “sell” button. It’s a bit of a mental trick, but it almost makes me look forward to the next bear market.


  18. […] Another advantage of a mad money account is the ability to spike returns. Sometimes—not often, but sometimes—I used options to either buy a stock by selling puts. Less often I used covered calls to generate additional income. These strategies are a double edged sword. A naked put might bring in additional revenue, but if the stock climbs higher your resources would have been better utilized owning the stock rather than getting cute in an attempt to pull an extra thousand or so in option premiums. Covered calls had the opposite problem. Sometimes a stock runs too far, too fast. But trying to figure out a top is nothing short of insanity. Covered calls can work, but you risk the stock climbing over the strike price. […]

Leave a Comment