Long-Term Investing with Options

Yes, I know... Warren Buffett says most people should just buy into low fee index funds, which is good & wise insight for the retail trader. Because options is risky and more often than not, retailers lose money to hedge funds that have access to an arsenal of information.

But the truth is Buffett, as well as his firm, Berkshire, trades options too. Berkshire (as with any other Hedge Fund) just isn't legally required to disclose their options positions. Buffett uses a much safer strategy with options. He sells put options to get into stocks he wouldn't mind owning. It's basically like selling insurance. If the stock falls to a certain price, he could get "assigned" or forced to buy 100 shares of the stock for every put contract he sold. But because he sold that contract, he also collected a "Premium" which is just the cost of the contract.

If the stock falls, he gets in at a discount AND collects the Premium. If the stock goes up, he doesn't get the upside but he does keep the entire Premium.

This is the same strategy I trade also. And I cover in my YouTube channel, Invest with Dan.