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Biltmore Capital CIO Tyler Vernon on investment strategies such as covered call options.
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Calm that down everybody I know -- all probably excited if you're bullish on the markets today but.
It's a bit of a rough ride.
He does not expect any more big gains this year but nonetheless.
It's not the worst picture no total meltdown Tyler Vernon is chief investment officer Biltmore capital advisors.
But how do you bring.
Some results of in combat out of a potentially stale or stagnant market.
Well first of all or is first quarter risk assets Rand market -- we have small cap mid cup run what blood in the larger caps behind remember the -- the last year were talking about dividend players you.
You can -- or not everybody is talking a dividend players we we think that's back the place to be in in dividends and specially large.
Large companies they've -- lot what largely left behind.
-- -- interest -- strategies we think covered call options make a lot of sense these are.
Options if your -- hold an underlying stock and you're okay selling it at potentially a little bit of -- higher price.
When you sell covered call option you get paid a lot of money right now.
And there's what they got a lot of income in your pocket the risk is -- the stock runs your upside is capped.
But in an environment where markets might not be running as much as one may think.
To cap upside isn't that much of a risk so again we get a lot of money paid upfront.
Risk being that we might not make as much of these stocks really run the Tyler give me an example is there a stock that you're doing.
This with right now sure well there is yesterday I was looking at Caterpillar.
The stock -- -- -- around one old seven -- one a waiter so.
One can go out to January and write a 110.
Option on Caterpillar meaning that if the stock went up to 110 they might have to sell the stock so they still get a little bit of upside if F five bucks yeah but you can you'll get paid about ten dollars a share today in your pocket so your pocket so you get received ten dollars a share today it's what the stock goes nowhere.
You've essentially made 10%.
Just by selling that covered call option.
Over the next year how do you pick stocks in which to sell for covered -- -- -- this is the -- -- right.
Well first of -- I think again Biltmore capital spend a lot of time doing that so you need to be watching -- higher don't -- capital.
I'm saying there -- there are other firms that are rather to in their mutual funds that actually do this so again at that strategies that that in our our little bit harder run the typical little bit more volatile stocks makes sense the more volatility.
Clients can get paid a lot more through the covered call options so you don't want -- stock that goes nowhere doesn't make as much sense.
On the screen we've got Morgan Stanley Gilead Whirlpool I robots and ask why -- these things what is it about them where the covered call becomes profitable.
Well again Morgan Stanley is typically a again -- it's it's more volatile name.
Men SanDisk a little bit more of a volatile names have typically.
When you have these more volatile names you get paid the investor gets paid more up -- just the nature of the peaceful again there's risk folks and when you do take that risk there may be report maybe not but that's what you would see you wouldn't see it in some states.
For -- Iraq but the nice thing about covered call options in general is that the risk is that.
You could have made more right -- when people think about risk they think about losing their shirts -- right when they think about risk.
The risk is still the underlying stock could go down but by employing the strategy the risk is -- -- could have made twenty dollars I only made ten.
So for refer clients there are a lot of people there OK taking that risk not a bad risk to take okay.
Coming up Tyler is going to name some stocks if he really likes -- likes some dividend yielding names he will put them right out there for you so get ready to.
