Warren Buffett believes in buying when the market is wracked with fear and selling when it is bloated with greed. Baron Rothchild had a similar view, that you buy when there is blood in the streets.

Mind you, neither where as clear when it came to predicting bottoms: Buffett’s view is that he would rather be “approximately right” than “precisely wrong.” And Rothchild never actually said how deep the blood must flow before a bottom his reached.

If traders can gain solace, it is that Buffett is buying brands… first Goldman Sachs and last week, General Electric Co. And, likely in recognition of his approximately right philosophy, he hedged his bets. Strong-arming both companies into issuing 10% perpetual preferred shares, with warrants attached. Totaling US $8 billion, and scooped up by his cash rich company, Berkshire Hathaway.

Of course Buffett’s philosophy is to hold long term and collect cash flow along the way. And while long term may not be a typical strategy for an option trader, hedging and cash flow certainly are. Now more than ever.

With volatility expanding, option writing continues to take center stage. Especially in Canada, where the MX Implied Volatility Index closed Friday at 49.83. Historical highs which have held over the past two weeks.

Whether building a portfolio or setting up defensive strategies for your current portfolio, cash secured puts and covered call writing will likely pay dividends. If not today, then certainly over this market cycle. Both strategies provide cash flow during what will most likely be a prolonged recessionary period.

In Canada, I see possibilities in companies like EnCana Corp (TSX: ECA, $59.05), one of the lowest-cost natural gas producers in Canada. Trading at an unusually low 1.1 times net asset value per share, some would say it has taken unwarranted hit in the overall market downturn. Especially with recently announced plans to spin off its natural gas operation into a separate company.

ECA at-the-money options are trading in the 90% implied range. Writing cash secured puts look interesting as a way to acquire shares below current prices. For example, the ECA Jan 58 puts are trading at $6.20. If the stock remains where it is or rises, the puts will expire worthless. If it falls, you are obligated to buy at $58 per share in January. But that works out to a net cost of $51.80 after accounting for the premium received.

Manulife Financial Corp (TSX: MFC, $36.47) is another company currently being tossed about by the general lack of confidence in the financial sector. But MFC is well capitalized, and if this company follows the approximately right philosophy, it may go on a Buffett style acquisition binge. Searching for fire-sale assets from the likes of busted-up AIG.

The MFC January 36 puts are trading around $3.00, or at an implied volatility of 42%. An assignment would put the shares into your pocket at a net price of $33 per share. A price point that even Baron Rothchild might say defines serious blood flow.