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Options guru Jeff Fischer describes how options can be used as a complement to stocks to boost the returns of a long-term investment portfolio.
When used responsibly, options can be a fantastic way to boost the overall returns of an investment portfolio.
But options are also shorter-term in nature and they are more highly-exposed to risks and uncertainties. So how, exactly, should investors approach them?
Jeff Fischer has three decades of investing experience. Between writing content for retail investors, co-founding multiple options newsletters, and even managing a hedge fund, he has a wealth of knowledge about investing strategies to generate long term returns.
In our recent conversation on March 7, 2025, Jeff and I discussed how options can be a long-term investor’s best friend for boosting returns — but they also have a few nuances that shouldn’t be ignored.
Using Options as an Investing Strategy
Options are best used as a complement to stocks. In Jeff’s words, “you’ll make most of your money owning stocks, but they work together with options to provide better returns.” Two of Jeff’s favorite strategies involve writing puts to generate income when he wants to buy a stock at a particular price and writing calls when he’s willing to sell a stock for a certain price. Even though options are shorter-term in nature (generally no longer than 2 1/2 year duration), they’re meant to be used as long-term compounding tools
We then discussed how investing in options can be slightly different than investing in stocks. Due to their shorter-term nature, options are more exposed to the behavior of the stock market and are more heavily influenced by its current mood of optimism or pessimism. While technical factors like the 300 day moving average or short interest do play a role, options strategies should still be built upon fundamental research and valuation.
Influence of the Macro and Technical Factors
Jeff then mentioned that options are also influenced by interest rates, where higher interest rates can increase the premiums for buying or selling options. Tangentially, volatility in the market — either on the upside or the downside — can suddenly provide short-term windows of opportunity. Again, it’s best to have a pre-determined price target and action plan already in place, to methodically take advantage of these opportunities. Going YOLO and backing up the truck on a whim isn’t a good long-term investing strategy.
I then asked Jeff how he feels about the tradeoff between an option’s intrinsic value and its time value. When selling options, you get paid the premium upfront; and you can later buy it back in the future to close out the contract. Jeff typically looks to close out options positions he has written if they’ve reached 80% or more of the premium’s total value — meaning there’s less than 20% of the initial premium left on the contract. Jeff also likes to roll options, where you can close a current option contract and replace it with another that’s at a different price and a different date in the future.
Individual vs Institutional Investing
We then discussed the difference between retail and institutional investors. Retail investors have the freedom to invest anywhere they would like, but institutions prefer much more predictability and credibility. When retirement funds are at stake, institutional investors are looking for their fund managers to reliably execute on the strategy they were created to accomplish. Even if a fund’s returns are “only in the mid single-digits“, this can be very valuable as a dependable source of capital gains or income for the right investors. In other words, options can be a great tool to provide stability for institutional funds.
Investing Ideas to Consider
In the outro, Jeff offered the sectors and stocks that he most enjoys to invest in. During his 30 year career, he’s mostly preferred software companies like Alphabet and Meta Platforms. He also mentioned Airbnb as a most recent opportunity investors might want to consider.
This was a great conversation with a great friend who has an endless pool of wisdom related to investing. You can follow Jeff on X at @OptionWell. And be on the lookout for his new book on options strategies later in 2025!
Interview Summary
Introduction and Guest Overview
- Simon Erickson introduces the podcast, emphasizing its mission to empower listeners to invest in their future.
- Simon introduces Jeff Fisher, highlighting his extensive experience in the investing industry, including co-founding Motley Fool Options and running a hedge fund.
- Jeff Fisher expresses his appreciation for Simon’s work and the community at Seven Investing.
- Simon sets the stage for the discussion, indicating that the conversation will delve into advanced topics about options rather than basic principles.
Jeff’s Approach to Options
- Jeff explains that he views options as a complement to a well-established equity portfolio.
- He emphasizes that options are primarily used for income generation, with stocks being the primary vehicle for long-term compounding.
- Jeff outlines the four primary ways to make money with options: buying call options, buying put options, selling call options, and selling put options.
- He stresses the importance of understanding the expiration dates of options and using them as a tool for income rather than long-term compounding.
Jeff’s Journey into Options Trading
- Jeff shares his motivation for exploring options trading, which began in 2000 when he sought financial independence and cash flow from his equity portfolio.
- He explains his initial focus on selling put options and covered call options to generate income.
- Jeff advises young investors to start small with options and learn gradually, as he did, to build a reliable income stream from their equity portfolio.
- He highlights the importance of having a meaningful equity portfolio before incorporating options into one’s investment strategy.
Strategies and Techniques for Options Trading
- Jeff discusses the importance of understanding the company and its valuation before using options.
- He provides an example of using put options to buy stock at a lower price or generate income if the stock price remains stable.
- Jeff explains the concept of writing covered calls to cushion downside risk and generate income from stocks that are fully or overvalued.
- He emphasizes the need for a long-term mindset when using options, even though they are short-term vehicles, by rolling options forward as needed.
Volatility and Market Conditions
- Jeff compares the approach to options trading during periods of volatility to driving a boat in choppy waters versus smooth waters.
- He advises being more conservative during times of extreme volatility and adjusting strategies accordingly.
- Jeff mentions the importance of having a cash reserve to back up options strategies and avoid taking unnecessary risks.
- He discusses the potential to buy call options during market corrections to gain exposure to stocks with less capital at risk.
Intrinsic Value vs. Time Value
- Jeff explains his approach to determining when to close an option position based on its intrinsic value and time value.
- He advises closing options that have made 80% of their potential value with several weeks or months to expiration to set up new opportunities.
- Jeff suggests letting options expire to collect the full premium if there are only a few days or a week left before expiration.
- He emphasizes the importance of being methodical and strategic in managing option positions.
Institutional vs. Retail Investing
- Jeff contrasts the approach of institutional investors with that of retail investors, noting that institutional investors often have a broader portfolio and seek long-term, predictable returns.
- He explains that institutional investors prefer managers who stick to their strategy and avoid taking excessive risks.
- Jeff highlights the importance of building trust and maintaining transparency with institutional investors.
- He notes that institutional investors often have different asset classes and funds, requiring a balanced approach to investment management.
Impact of Automation and AI on Options Trading
- Jeff discusses the impact of automation and AI on options trading, noting that volatility can occur much more quickly and dramatically.
- He emphasizes the need for individual investors to stay calm and grounded in their approach to options trading.
- Jeff believes that the human perspective and long-term investing still have significant value, despite the rapid changes driven by technology.
- He highlights the importance of owning strong, growing companies and letting them grow over time.
Sector and Stock Recommendations
- Jeff shares his preference for technology stocks, particularly software and tech companies, as a fit for options strategies.
- He mentions Airbnb as a stock that has been stable and suitable for options trading, with a reasonable price-to-free cash flow ratio.
- Jeff advises using options to generate income from Airbnb, whether one owns shares or not.
- He emphasizes the importance of focusing on high-quality companies with strong management and growth prospects.
Jeff’s Upcoming Book on Options Trading
- Jeff announces that he is writing a book on options trading, aimed at making the subject approachable and understandable for readers.
- The book will cover the basics of options, strategies for income generation, and Jeff’s personal experience over the past 25 years.
- Jeff notes that the book is targeted at retirees and those seeking to generate income from their equity portfolios.
- Simon expresses his excitement about the upcoming book and thanks Jeff for sharing his insights on the podcast.
