Choosing Options

Our plan tends to underperform speculative manias, yet outdo catastrophic drawdowns.

Atlanta, GA

September 29, 2026

About six months ago, I sold a put on Microsoft (MSFT).

In retrospect, I should’ve bought one. But I don’t usually buy options. In most cases, that’s a mug’s game… especially purchasing puts. Tendencies and time work against you.

Stocks usually rise (which is why perceptive speculators do so well when they don’t). When buying options, time is your nemesis. The clock consumes value as expiration approaches. But sellers profit as days tick away.

Option buyers have to be right on both the direction and timing of the expected move. If their prediction doesn’t pan out, they lose everything they paid.

But a seller merely hopes the stock doesn’t rocket the wrong direction before the option expires. He can profit even if the underlying asset drops a bit. And if it falls too far, he’s at least consoled with shares of stock he’s happy to own at the price he paid. Otherwise he shouldn’t have sold the put.

That’s why I prefer selling options to buying them. As Doug Casey puts it, when buying an option you must be very right. When selling one, you simply needn’t be too wrong.

Fortunately, I don’t worry too much about being “wrong” either. Scuzzy as it might sound, I think of myself as an insurance salesman. Most of the time, I collect premiums and reinvest the float.

But occasionally, “disaster” strikes. When it does, after paying the claim I sell a new policy to another client… and then collect more premium than I paid to buy the first policy back.

This approach extracts cash however the market moves, tho’ it must do so for longer when the underlying stock goes down. Usually, the price goes where we want… or at least far enough in that direction.

When I sold that MSFT put, I expected to let it expire by the end of that week. Three days later, I knew I couldn’t. The stock had fallen further than I’d expected.

The week before I sold my put, Microsoft had a superficially “good” earnings call… in which earnings exceeded expectations by 34%. But the stock shed almost a fifth of its value after CEO Satya Nadella hung up the phone.

It makes one wonder what’s going on. Like the Internet bubble thirty years ago, the AI boom includes a host of frothy companies promising an inevitable future of unimaginable prosperity. Was Microsoft one of them?

Microsoft is the cloud for OpenAI, and happens to own more than a quarter of that company. OpenAI is bleeding cash. If it dies, Microsoft will survive. But it’ll limp to the funeral.

Rather than be assigned the stock at a strike so far over the current price, I “rolled” the option to a future date. This premium earned me another half percent rate of return per week, which equates to about 30% annually. That’s below my typical target, but acceptable pay to “salvage” a trade.

Combined with a portfolio asset allocation heavily weighted to precious metals, some income-producing stocks, a smattering of speculative plays, and interest-bearing bills, this is my plan to see us thru whatever financial crisis comes.

So far, it’s working. Our portfolio tends to underperform speculative manias, yet outdoes drawdowns. Which is fine. At our age, we don’t need to seek the highest wave. Our goal is to avoid drowning.

In retrospect, I’d have made far more money buying a put than selling one. But hindsight doesn’t need prudence.

Throughout the drawdown, I managed my MSFT trade while it made me money. Even (or especially) in bear markets, stocks often shoot higher. This one did. But not before I was assigned the stock. I started selling covered calls, and have been doing so since.

My Microsoft trade was consistent with my put-selling strategy, but is a good reminder of a notable caveat. No matter how solid a company seems, we never know what its stock will do.

For several years after leaving corporate life, this is how I’ve made money. I don’t know which way “the market” will go, and don’t really care. Up, down, sideways… who knows?

I just sit back and see, and trade what it gives me.

JD