Amazon and Google both sold off after earnings, largely on worries about AI capital spending and a softening economy. Brian Overby still sees both as long-term buys, but with the midterm elections days away and the Fed likely to raise rates, he understands why shareholders are nervous. In episode 29 of Fundamental Fridays, he shows four ways to protect a stock you own without selling it, using Amazon near $238–240. 1. The protective put. Brian thinks of puts as short-term insurance, typically 30 days, not something to roll forever. He buys the 230 put about 28 days out for about $4.74. Combined with the drop from the current price down to the 230 strike (the “deductible”), that caps the downside at roughly 6% through the election. If Amazon falls to 200, you can still sell at 230. He describes it as the strategy for when you’re “bullish but nervous.” 2. The covered call. Selling a call collects premium instead. The 265 call, about one standard deviation out of the money (roughly a 14 delta), brings in about $1.30–1.40. Implied volatility has already fallen back to about 30%, so the premium isn’t huge. If the stock rises to 265, decide early whether to let the shares go or roll the call up and out, before it’s deep in the money. 3. The collar. Combine the two: buy the 230 put and sell the 265 call, cutting the cost of protection to about $2.94. Or bring the call down to 250 for a zero-cost collar, done for “even,” which gives about $9 of downside to 230 and $11 of upside to 250. Brian prefers paying a little for the wider collar so the shares are less likely to be called away. 4. The “covered call on steroids.” For shareholders leaning bullish, Brian sells a front spread against 100 shares: buy the 250 call and sell two 255 calls, for a net credit of about $1.85. Owning the extra call means you earn double between 250 and 255, so the trade can make the $1.85 plus another $5 before the shares are called away at 255. It brings in about half the premium of a plain covered call but adds more upside. He says Google, which was hit even harder, would also be a good candidate. All of these strategies can be used in an IRA with the right options approval. Key takeaways: – Protective puts work best as short-term insurance around known risks. – Roll covered calls before they go deep in the money. – Collars cut the cost of protection by giving up some upside. – A front spread against owned stock adds upside while still collecting premium. Options involve risk. This episode is educational and not a recommendation. |
