By Steven M. Sears
The markets are looking dicier. The best move could be to sit tight and gather data.
Stocks, commodities, options' implied volatility, and bond yields might soon be dramatically repriced by nonmarket events that are hard to predict. Doing nothing is a proactive strategy.
If the Iran war gets bloody and oil prices surge higher, fundamental stock analysis will be useless. The same holds true if President Donald Trump attacks Cuba.
In the short term, geopolitics is often more important to stock prices than finding mispriced stocks with growing revenue, earnings, and profit margins.
Other political issues besides war could roil markets. Investors are starting to realize that inflation may make it difficult for the Federal Reserve to lower interest rates. A growing number of observers now think a rate hike is possible this year.
An even more significant threat than inflation stands in the way of accommodative monetary policy. If the incoming Fed chair, Kevin Warsh, reveals that he isn't the apostle of lower rates that he is believed to be -- or if opposition from the Federal Open Market Committee prevents him from lowering rates -- investors might hesitate to keep buying stocks near record-high levels.
Our enemies understand our economic and financial challenges. The Iranian regime, a top oil producer and terrorism sponsor, knows that cheaper oil prices ease inflationary pressures, making it feasible for the Fed to satisfy Trump's desire for lower rates. Unfortunately, the Iranians also know how to weaponize oil to achieve their twisted ambitions. Oil prices are perhaps their only real negotiating chit.
For investors who cannot wait for the dramas to play out, the risk-reversal strategy is a way to take risk-adjusted action.
By selling a bearish put option with a strike price below the market price of a security you want to buy, and buying a bullish call option with a higher strike price and same expiration, investors can pick prices at which they are willing to invest. (Calls give holders the right to purchase a security at a set price and time, while puts give holders the right to sell a security at a set price and time.)
The put lets investors buy low, while the call profits from advances. In stock terms, risk reversals let investors buy low and sell high.
Given concerns about inflation, Walmart stock serves as a good example. With shares at $134.20, you could sell the August $130 put and buy the August $145 call. The trade, which generates a credit of about $1.20, covers the May 21 earnings report, the June 4 shareholders meeting, the Aug. 20 second-quarter earnings report, and the June and July meetings of the FOMC.
If all goes to plan, the call is worth $15 if the stock is at $160 at expiration, and the put becomes worthless. Should the stock fall below $130, investors must buy it or adjust the put to avoid assignment.
During the past 52 weeks, Walmart has traded from $93.43 to $134.99. This year, it's up 21.1%.
Risk reversals are simple, but the strategy does have a downside. Everyone loves selling puts because it seems like free money, but few like having to buy stock below put strikes. That's the trade risk.
In those situations, remember that you wanted to buy the stock at a higher price; the strategy gave you the chance to buy it more cheaply.
No one buys and sells at tops and bottoms -- unless they're very lucky -- but anyone can train themselves to control their emotions to make disciplined decisions.
When stocks decline past put strikes, you can buy the stock and sell another call to make even more money, or let the position settle into your portfolio. Should a stock push through a call strike, so be it. That allows you to sell another put and begin anew.
Such are the ways of active portfolio management, and of emotional mastery. Investing is hard, but many make it harder because they insist on being their worst enemy.
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May 22, 2026 21:30 ET (01:30 GMT)
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