Why We Sell Options When Markets Get Volatile

Market volatility isn’t something we try to sit out. It’s something we get paid for. At Freedom Capital Advisors, a Florida-registered investment adviser, one of the strategies we’ve relied on for a while is selling options, covered call writing in most accounts and puts in more aggressive ones. Volatility actually works in our favor on that side of the trade, because when uncertainty rises, so does the premium available on the options we sell. That means we can collect more income for taking on the same risk we’d take on any other day.

That’s the short version. The longer version starts with why volatility feels so different today than it did a generation ago, and why we treat the noise as an opportunity instead of a reason to step to the sidelines.

The Market Doesn’t Sleep Anymore

I got into this business in 1987, about six months before Black Monday. Back then, the news came on once at six o’clock, you watched it, and that was that. Today it runs 24 hours a day, and it isn’t just anchors delivering it anymore. Computers scan every headline the second it hits the wire and react before most people have finished reading the sentence. Another day, another headline. A new ceasfire here, a deal there, and the market has already moved on it before lunch.

For a lot of investors, that constant noise is overwhelming. It’s genuinely hard to tell what matters from what’s just going to move a stock for ten minutes and then fade. I understand the instinct to want to sit it out until things calm down.

We Don’t Avoid Volatility, We Get Paid for It

Here’s the part most people miss: volatility isn’t just noise for an options seller, it’s the input that sets the price. When implied volatility rises, options get more expensive, on both sides of the trade. As buyers, that works against us. As sellers, it works for us.

Selling options confuses a lot of people, and plenty of advisors avoid the conversation altogether because doing it well takes real, ongoing work. It isn’t a strategy you can set and forget. Positions have to be watched, and sometimes rolled or adjusted, as the market moves. That’s exactly why we lean into it instead of away from it. As option sellers, we get paid more premium to take on the same risk during volatile stretches, and that extra premium is what helps lower our effective cost basis on a position. Done carefully, there’s real opportunity in that, along with a measure of peace of mind that comes from being paid for the risk you’re already taking.

The Goal Is Always the Same: Buy It Cheap

Our approach to value investing comes down to one idea: try to buy good businesses as cheaply as possible. Options are one of the tools we use to do that, and it’s the same discipline whether markets are calm or chaotic.

Buy-Writes in Retirement Accounts

In retirement accounts specifically, we often use what’s called a buy-write: buying a stock and selling a call against it in the same transaction. The premium collected from that call effectively discounts the purchase price of the stock. If the stock also pays a solid dividend, an investor is collecting two forms of income from day one, provided they aren’t attached to holding that particular stock forever.

That last part matters, because a buy-write is a trade-off. You lower your risk going into the position since you’ve discounted your entry price and layered on income, but in exchange you may give up some of the upside if the stock runs past the strike price on the call. We map out that range of outcomes on every buy-write before we ever place the trade, not just the premium we’re collecting today. We’ve written in more detail about how we structure and manage covered call positions here, including how we decide between in-the-money and out-of-the-money strikes.

Frequently Asked Questions

What is a buy-write strategy?

A buy-write means purchasing a stock and selling a call option against it in the same transaction. The premium collected from the call effectively discounts the purchase price of the stock, and if the stock pays a dividend, that income continues as long as the position is held.

Why would an investor sell options when volatility is high?

Higher volatility increases the price of options on both the buy side and the sell side. As an option seller, we collect more premium for taking on the same risk during volatile periods, which can lower the effective cost basis of a position and add a cushion against price swings.

Are covered calls and cash-secured puts risky?

Selling a covered call is generally considered a conservative use of options because the position is backed by stock the investor already owns. Selling a cash-secured put carries more risk, since it can require buying the stock at the strike price if it falls below that level, which is why we typically reserve it for accounts with a higher risk tolerance.

Why do so many financial advisors avoid selling options?

Options strategies require active, ongoing management rather than a buy-and-hold approach. Positions have to be monitored and sometimes rolled or adjusted as the market moves, and that takes more work than many advisory practices are set up to do.

Is a buy-write appropriate for every retirement account?

Not necessarily. A buy-write trades some upside potential for a discounted entry price and added income, which fits an investor who’s comfortable holding a stock for the long term but isn’t emotionally attached to any single position. It isn’t the right fit for someone who wants full participation in a stock’s upside.

A Second Opinion, If You Want One

If your current advisor already builds strategies like buy-writes, covered calls, or cash-secured puts into your accounts, ask them how they manage the trade-offs. If they don’t, or you’re not sure, we’re happy to walk through how it works and whether it fits your situation. Schedule a Strategy Session and we’ll talk it through together.

This article describes Freedom Capital Advisors’ general approach to options strategies within client portfolios. Freedom Capital Advisors Inc. is a state-registered investment adviser. This content is for informational purposes only, does not constitute personalized investment advice, and is not a recommendation to buy, sell, or hold any security or option contract. Individual account strategies vary by client circumstances and risk tolerance.