Michael Shulman, Expert Trader, Analyst and Educator

Michael Shulman, Expert Trader, Analyst and Educator

If you plan to hold on to a stock for a while, today is not the day to sell a call.

Moved by a sharp drop in the Chinese stock market, the U.S. indexes opened far lower.

There is a silver—or, actually, a very green—lining to this move…

Volatility is up, which means premiums are fatter. With this in mind, take a look at creating a buy-write position: buy the shares and immediately sell a call.

When markets are wobbly, it often makes sense to sell an in-the-money call, as well.

One of my favorite companies (I look at companies, then stocks) is the independent refiner Tesoro (NYSE:TSO). It broke below the 105 level at the open.

Tesoro shares are a steal. Buy the shares and sell this week’s 105 call.

Or, if you want to build a true buy-write position, sell an in-the-money call one strike below what you paid for it. If you paid 103, sell the 102 and so on.

This increases the likelihood you’ll get called out, but also generates more cash and lowers your cost basis, should the stock continue to fall.

I’m being a bit vague because markets and prices are moving fast, and this kind of buy-write is a good tactic—an antidote to this kind of short-term tumult.

Think about it.

(Michael Shulman owns TSO shares.)

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