What do you think is the best strategy for buying BRKB right now? (1) Buy now, averaging down if the price continues to fall. (2) Buy now, but hedge the purchase with a short of the S&P. (3) Wait in cash until it looks like the bottom is in.
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Or one other option: buy some DITM long dated calls given the prospects of recovery for based on P/B (or P/Pk-B). Obviously, this would have done better at 260, but even today at 274:
| Strike | Margin | Leverage | Years | |
|---|---|---|---|---|
| Jan/23 | 165 | 5.08% | 2.46 | 0.35 |
| Jun/23 | 125 | 5.98% | 1.78 | 0.76 |
| Jan/24 | 135 | 7.03% | 1.83 | 1.35 |
| Jan/25 | 135 | 7.52% | 1.73 | 2.35 |
We are looking at “effective” margin rates for some rather impressive leverage that appears at below inflation rates. If BRK returns inflation+10% from here then the Jan/25 calls are rather enticing.
Anyone else looking at this?
–Gabriel
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There was a long thread about this on the old boards. I just checked and it’s still available, but probably not for much longer. Look particularly at the articles from Jim.
I’ve used it once, buying some BRK-B calls March 20, 2020 (sometimes it’s better to be lucky than smart…), and doing quite well, and will probably do it again.
Brian
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I purchased the Jan/25 135 w/ BRK a smidge higher than today’s prices. Coat-tailing on Jim’s suggestion. Yeah, 260.xx would have been nice 
Who knows, we may see that again. Not looking like we have a market bottom yet.
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Almost my entire BRK holding is currently in DITM Jan '25 call options. I’m still a working stiff so if the rut runs long, I’ll roll them out in '24 with added capital from my wages.
As you say, it is possible that inflation will outpace the implied interest rate of the DITM calls, even if the implied interest rate is higher than one was paying a couple years back.
On what I believe to be conservative assumptions, I also expect after inflation returns over the course of the calls, or over the course of the calls + one roll, will be over 10%. If it’s under that figure through '24, and a large asteroid hasn’t struck earth, I suspect I’ll be salivating at the likely returns from the options as rolled in '24.
In any case, while there’s some added risk, I prefer my likely returns leveraged over non-leveraged.
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I’ve done the long dated DITM calls a few times and it’s worked out well, but not at high VIX.
Another approach, if the present effective interest rate seems high (even though on a relative basis it may not be so high, as pointed out by hip hop), is to simply go long BRK so as to not lose a good entry, then when things are less volatile and calls less expensive, convert to DITM calls for leverage if BRK is still undervalued. There are tax consequences to this that apparently didn’t affect Jim.
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