Options Strategies for Value Investors
Match the option strategy to the value thesis.
Not every situation calls for the same strategy. The right move depends on your conviction level, the stock's valuation, your cost basis, and how much time you want to give the thesis to play out.
Research Stocks in the AppFour Strategies. One Framework.
Each strategy fits a specific situation. The valuation always comes first.
| Strategy | When to use it | What it does for you | Key risk |
|---|---|---|---|
| Cash-Secured Put | Stock is attractive but above your buy price | Collect premium while waiting for your price; buy cheaper if assigned | Assignment at a price still above intrinsic value if the stock drops hard |
| Covered Call | You own shares and the stock is near or above fair value | Generate income while holding; willing to sell above fair value if called away | Capping upside if the stock runs well past your strike |
| LEAPS | High-conviction idea; stock undervalued; 2-3 year thesis | Leveraged upside with less capital tied up than owning shares outright | Total loss of premium if thesis takes too long or stock stays flat |
| Protective Put | Concentrated position you want to hold but protect near-term | Defined downside floor; keeps long-term position intact | Premium cost erodes returns if fear does not materialise |
How to Choose the Right Strategy
Run through these questions before deciding which option to use.
Do you want to own this stock?
If no, no option strategy is appropriate. Both puts and LEAPS require conviction in the underlying business.
Is the stock below fair value, near fair value, or above?
Below fair value favours CSPs or LEAPS. Near fair value favours covered calls. Above fair value typically means no option is appropriate.
Do you already own shares?
Yes narrows the choices. Covered calls generate income. Protective puts limit downside. Selling more puts builds the position further.
What is your time horizon for this thesis?
Short-dated options (30-60 days) suit income strategies. LEAPS need 18-24 months for the value to surface without excessive time decay pressure.
Can you handle assignment?
Selling puts means you may receive 100 shares per contract. Make sure you have the cash and the conviction to hold them if assigned.
Common Mistakes to Avoid
Selling puts on weak businesses just because the premium looks good. Premium income does not offset a bad underlying.
Setting call strikes below fair value just to collect more premium. You risk selling a wonderful company too cheaply.
Using LEAPS for speculative plays instead of high-conviction value ideas with clear upside and a time horizon that makes sense.
Overloading the portfolio with options on every position. One or two strategies on a few well-researched stocks is better than ten simultaneous trades.
Know Your Buy Price Before You Trade
The Wall St Yardie app gives you the valuation work you need to choose the right strategy with confidence.
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