An options strategy pros use when looking to buy stocks on the cheap during big market declines


An options strategy pros use when looking to buy stocks on the cheap during big market declines

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The market decline has been scary and may be far from over. But some investors believe there are stocks they favor over the long term which are reaching attractive values, even if the


economy goes into a recession. There is an options strategy pros use to generate some income during big downside market moves that allows them to buy stocks at prices they believe are low:


selling puts. Here's an example of how it works, according to Market Rebellion co-founder and CNBC contributor Jon Najarian . (Prices have changed a bit since the Najarian example


because of Friday's late-day rally.) If Microsoft is trading at $143 per share, but an investor wants to wait until it falls to $140 before buying it. Instead of waiting, Najarian says


to sell a one-month out put option at the 140 strike for $9. By doing so, the put seller "obligates themselves to buy MSFT at $140, minus the $9 premium collected from the sale of the


put," Najarian said in an email. "Thus, if that owner of the put elects to sell you MSFT at $140, after taking the put premium into consideration, you'd be buying shares at


$131." The upside of this strategy is, if Microsoft holds above the 140 strike, "you keep the $9 premium for your willingness to act as the insurance company for MSFT shares."


The downside is that the stock falls even further. Najarian also noted this strategy has been used by the likes of Warren Buffett and Michael Dell among others. Big sell-off The U.S. stock


market had a torrid week, with the Dow Jones Industrial Average dropping 10.4% while the S & P 500 plummeted by 8.8%. Those losses ended the longest bull market on record, which started


in March 2009. Investors dumped stocks amid concerns of slower economic growth stemming from the coronavirus. Alli McCartney, a managing director at UBS Private Wealth Management, said


Thursday on CNBC's " Squawk Alley " this sell-off will become a longer-term buying opportunity, "but we're not there yet. So use options strategies to get in at


below-market levels."