Options guru Jeff Fischer discusses with 7investing 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 be using them responsibly?
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 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.
Options are best used as a complement to stocks. Jeff describes why he's often 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.
We also 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 do play a role, options strategies should still be built upon fundamental research and valuation.
Jeff then described 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.
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.
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.
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