In late May, Walmart seemed like an opportune buy.

At around $134, the stock appeared poised to prosper if rising prices sparked by the Iran war prompted people to economize. We suggested selling a put option and buying a call option to buy Walmart lower or participate in gains triggered by a pending earnings report. (Calls give holders the right to buy shares of an underlying asset at a specific price and time, while puts give holders the right to sell shares under similar conditions.)

Instead, the stock tanked when Walmart reported that its operating margins were pressured by fuel costs and declining consumer spending. Management lowered earnings guidance. Our put and call recommendations, which expired in August, failed to work as expected. Anyone who followed our advice wound up buying the stock and saw it sharply decline, while the call expired worthless.

Since then, Walmart stock, now trading at $108.09, is starting to look better. Market volatility is making investors warm to our initial thesis, and it appears to be a reasonable buy given present conditions.

We highlight our misfire because investing is the art of trying to make good decisions with imperfect information. To improve, it's imperative to know why trades succeed or not. Postmortem reviews also reinforce tradecraft.

Our primary analytical mistake was overconfidence in management's expense discipline. We also overestimated consumer spending resilience. The stock could have overcome those, but lowering earnings guidance changes a stock's valuation, and that usually triggers a selloff.

In retrospect, our analysis was narrow, and our desire-to monetize the usual pre-earnings fear in puts to buy a call and profit from a rally-went unfulfilled.

Still, the outcome wasn't without some upside. We sell puts only on stocks we want to own, and owning a position in the world's largest retailer is fine, even though our true intent was profiting from buying the call.

Our approach differs from many in the options market who fantasize about risking a little to make a lot. Our preference is monetizing greed, and especially fear, as the market mob is always either too optimistic or too pessimistic.

When investors are afraid, stocks are mispriced and puts are more expensive than merited. Many investors never appreciate the power of buying fear, even though it can build meaningful wealth. Over time, stocks tend to regain lost shine.

During the 2008-09 financial crisis, the stocks of many of the world's greatest companies were obscenely mispriced. Anyone with cash and nerve could have bought Apple, JPMorgan Chase, Goldman Sachs Group, and almost any major blue-chip stock at once-in-a-lifetime prices. Few did.

When selling puts, be prepared to own the stock for at least three to five years and ideally longer. During that time, most stocks regain their equilibrium and advance.

When a put trade results in buying stock, remember that even if the stock declined more than expected, you were still getting paid to buy it. Plus, the effective purchase price is less than the strike price, thanks to the options premium.

And note that when you have to buy the stock, you can sell calls against that stock to generate income. When selling calls on stocks-these, too, are often inflated with greed premiums-pick options 5% to 10% above the stock and that expire in a week or two. To trade less, consider three-month to six-month expiries with strikes above the purchase price of the stock assignment.

A conservative options-selling program can add 6% to 8% to your annual returns. But there is a more powerful benefit. This type of portfolio management prompts investors to think about probabilities and to question what they did, and why. Anyone who commits to that approach learns a secret: Options trading is an analytical framework for evaluating stocks and risk that helps investors better navigate markets.

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