Deep discount buys using options

vvskyscraperAccumulation of first class assets at a safety discount

is one of the safest ways to build a sizeable nest egg. The value part of GAMAG´s Vola+Value-startegy is old fashioned deep value investing. The innovation is the combination of this proven approach which among others made Warren Buffett one of the richest persons on this planet and amde his mentor Benjamin Graham the godfather of investing with short options positions. Often after a deep fall stocks need some time to restructure until a new wealth cicle emerges. Options enable an investor to buy at a further discount while achieving additional gains from option´s premia as he or she is waiting out the bottom buiding process. Assuming a real estate company´s stock fell from 200 to 100 whereas the real estate is worth 150/stock the deep value level is there. Classic deep value investing would now state that a sufficient discount to net asset value has been reached and buy the stockl. The option strategy in turn would be to sell a put option to sell the stock toi GAMAG Vola+Value Ltd. to the market for 1/2 year for e.g. 10.

3 cases:
a) If the stock falls further after the option sale GAMAG Vola+Value Ltd. is assigned and has to buy the stock at ghe prearranged 100 level. But as the option premium of 10 must be counted too, the real buy price after the option premium discount is 90 and thus the option seller is covered for the next 10% downside. In this case he or she always comes ahead compared to a classic stock investor.
b) If the stock trades sideways for the next half year the option seller may keep the option´s premium. So even if he or she has to buy back the stock slightly higher at e.g. 102 this is still preferential to having bought the stock outright taking the gain after the option´s effect into account whoch overall is 8 (loss 2 as 102 is higher then original buy price but this is overcompensated by the 10 in premium received).
c) Up to the 110 level for the stock price the option seller comes ahead even if the stock climbs within the 6 month period. The option´s premium in all these cases results into an overall yield of 10% or 20% per annum.

To sum it up the combination of deep value thinking and options causes deeply discounted buy prices and a broader range of profitable buy prices and an attractive yield even if the option is not assigned finally.