> Does anyone do this in an IRA or 401k?
Yes. No problem.
Can you do this there without having the cash you’d need, if the call expired in-the-money and thus was auto-executed? Because needing the cash would defeat the purpose of using a call in the first place.
Can you do this there without having the cash you’d need, if the call expired in-the-money and thus was auto-executed? Because needing the cash would defeat the purpose of using a call in the first place.
See Rayvt’s post above.
I don’t think I’d trust the broker to be nice, though. Rather go with ‘just sell the option before expiry’.
Added some Jan. 2024 150 calls for $138. Break even @$288 500 days away, whatever the vol it seems like a reasonable bet imo.
I don’t think I’d trust the broker to be nice, though. Rather go with ‘just sell the option before expiry’.
It’s also useful to contact your broker and find out their policy.
If nothing else, you’ll sleep better.
Jim
FYI- Jan. 2025 BRKB calls/options are (finally) available for those interested.
Jim or other valued posters, any thoughts and opinions on their pricing/value, especially DITM calls?
OK, looking today (9/13) at the various DITM BRK-B Calls we have the following:
Jan-23 185 CALL - 6.6% Margin, 2.78x, 0.35 years
Jun-23 130 CALL - 6.14% Margin, 1.79x, 0.76 years
Jan-24 135 CALL - 6.58% Margin, 1.79x, 1.35 years
Jan-25 150 CALL - 6.62% Margin, 1.86x, 2.35 years
So it looks like they all have quite similar (effective) margin costs, and outside of the very short term Jan-23, similar leverage.
According to y-charts, Price-to-book is currently 1.35 (though Jim says price to peak book is a better measure). Not at the bottom of the range, but not at the top, either. So the question becomes is it worth 6.6% of margin borrowing cost (uncallable) to get 1.8x leverage on BRK for the next 2 years?
Thought?
–Gabriel.
According to y-charts, Price-to-book is currently 1.35 (though Jim says price to peak book is a
better measure). Not at the bottom of the range, but not at the top, either. So the question becomes
is it worth 6.6% of margin borrowing cost (uncallable) to get 1.8x leverage on BRK for the next 2 years?
Thought?
Berkshire’s value can be assumed to be inflation adjusted.
The inflation-adjusted value per share is likely to drop due to inflationary issues only if inflation is so high the economy breaks, which is not a current prospect.
Revenues will keep up. They will raise prices as required, as most firms do.
So, as the implied interest rates are nominal, it depends a fair bit on what you think inflation might be on average during the term of the contract.
On expiry date you get to pay back the loan with dollars that are much less valuable than dollars today.
If inflation is 6.6%, which is lower than recent figures, then the “loan” is free.
My uninformed guess is that inflation will moderate to something more like 4.5%.
The implied nominal interest rate for all Jan 2025 strikes under $190 is under 7%, so if my guess is plausible then the real interest rate is 2.5% or less.
Sounds pretty reasonable, phrased that way.
And if I’m wrong?
Unusually high future inflation–including recent rates–would mean the calls are an unusually good deal.
And vice versa, of course.
Jim