While investment results in the markets are not guaranteed, there are relatively simple options strategies that can greatly reduce risk and generate far more predictable returns in the long run.
That was the key takeaway from a presentation by Phil Davis, founder of PhilStockWorld, at the 2022 FinTwit Conference hosted by Benzinga and Lupton Capital at the ARIA Resort & Casino in Las Vegas.
What Happened: Davis explained that by utilizing options in your investment strategy, you can buy stocks at a 10%-15% discount, enhance your dividend returns and conserve cash.
The underlying message of his presentation was that rather than being the gambler, a trader should be the house. “The things that Goldman Sachs does, the things that J.P. Morgan does, we can do the exact same thing that they do, and there’s no barrier to entry and very few people understand this concept.”
He said options strategies can help those who are hoping to get better results from their retirement accounts. Davis said utilizing options can be pivotal for retirees, who aren’t keeping up with inflation and only getting 6% to 8% returns on their investments.
Be The Casino: When you own a stock, it’s like “owning the casino,” Davis said. He explained that there are people who want to use your casino and buy options on your stock, and are willing to pay a premium to do so.
Additionally, he noted that someone selling an option can terminate the contract at any time, which is another “huge advantage.”
Davis calls this system “Getting Rich Slowly.” He pointed out that more than 80% of all option contracts expire worthless, so being the seller is a far better position than being a buyer.
The Current Market: The founder of PhilStockWorld acknowledged that selling calls during the recent bull run may have resulted in disappointment, although the current downturn presents a great opportunity for his strategy. Davis says selling options is also effective in flat markets, and that in a 20-year period, there are only three or four years when selling calls is a disadvantage.
The current downturn presents a great opportunity to collect a premium on selling call options and using that cash to buy additional shares of a stock at a discount.
Davis said a key factor to his success in using options for leverage and hedging is picking the right stocks. He named companies like Pfizer Inc. (NYSE:PFE), Apple Inc (NASDAQ:AAPL), IBM (NYSE:IBM) and Bank of America Corp (NYSE:BAC) among those which are ideal for the strategy.
See the full presentation below:
