Marrying Value With Options

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During his recent interview on The Acquirers Podcast with Tobias, Tim Travis, founder and deep value investor at T&T Capital Management discussed Marrying Value With Options. Here’s an excerpt from the interview:

Tobias: Can you describe your strategy?

Tim: Sure. Definitely, we start first and foremost with identifying deeply undervalued securities, whether that’s equity, whether it’s fixed income. And then, what we do is we look, what’s the best way to play it? If we think this stock’s likely to double within the next two or three years, then certainly just owning the stock outright or theoretically buying call options would be the most sensible strategy. But perhaps, now, we’re a little concerned with the overall market, valuations are high, you’ve got the inflationary backdrop.

So, what we’ll also do is, we’ll look, okay, well, what’s the debt trading at? Most of that is yielding very paltry returns right now. Then, we might look okay, well, what about selling a put? Selling a put with the willingness to own the stock at a cheaper price and depending on the returns you can get on those puts, and how far away from the current market price, that might be a better risk-adjusted return. Particularly, because we’re not a hedge fund. We are a registered investment advisor. So, we’re investing for everyday people and making sure that we’re prudently doing it. So, that could be a good risk-adjusted return, especially in a market like this.

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