I found out there is an option for 1/20/2023 in the dropdown option. Thanks.
I did things the old fashioned way - I sold some shares (@ $341). The main reason is that I want the cash available for other ideas.
I sold about 5% of my BRK - although I was tempted to sell even more. This is equivilant to the amount I purchased back in October (@ $288)
tecmo
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What is going on???
Berkshire does not rise 2.1% (the current state the moment I write) in a single day. It simply doesn’t do that. So: Why?
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Jim,
Thanks for the info. I just sold 1 option at $30, the first time ever of option trading. This fits my situation very well as I plan to sell more BRK-B shares, now I will use options, it seems a nice protection in either way.
This is a fancy way of improving the outcome of situation (1)&(2) above: a “redo” with a higher exit price or more cash, though it takes longer.
I tend to write my covered calls for much shorter expirations (a month or two). Just so that I have more to do to keep me off the streets. When necessary, I typically roll out another month to the highest strike with little to no net debit.
In theory the stock price could rise farther and farther away from my strikes. But I wonder if BRK has ever done that over a period of a year or more. Without looking at the actual price history I speculate that the stock price always takes a breather to eventually allow closing the calls without a loss.
Ok, writing covered calls is not the same as selling stock.
Opening a covered call position (buying stock and writing a call) is not the same as selling stock.
But that’s not the suggestion here.
Writing a call to accompany a pre-existing long position is equivalent to selling that stock…albeit conditionally.
You just don’t know for a while whether you sold the stock or merely pocketed some cash.
Nevertheless: What happened to Jim’s 3% rule which says …
Some people like to play the odds of what a stock price might do next. Stack the deck a bit.
If you are comfortable with that notion, then by all means wait for a bit of a pull back.
But selling at a good solid multiple has its own logic and merits, depending on your situation, even
if you’re not the type to try to play the odds on short term price movements.
Market pricing instead of market timing, as it were.
Given the fresh new highs, it seems likely that in the very short term, more of the same is somewhat more likely than not.
But some people quite reasonably don’t care what’s slightly likely to happen next. The price on offer is a more knowable thing.
Jim
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<<January 2023 $340 calls are trading at $29.>>
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I can’t find that price on Yahoo financial: https://finance.yahoo.com/quote/BRK-B/options?p=BRK-B
Could you show where to get it? Thanks.
In the pull-down box for the dates, select “January 20, 2023”.
The top section of the table is call options.
Scroll down that top section till you see the strike price of $340.
At the moment, that’s the last blue row.
Then look across and you’ll see columns for the last trade price, bid, and ask.
Ignore the last trade price. (always).
You could sell at the bid, or most likely a bit better using a limit order.
At the moment, the bid is shown as $30.65.
Selling one of those is equivalent to (conditionally) selling some of your stock at $370.65/B = $555975 per A share.
You’re giving the counterparty the right to buy from you at (net) that price any time till next January.
It’s extremely unlikely they will do so as long as the option has any time value left.
Jim
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Maybe to buy a certain oil company with significant oil and gas reserves in very safe places. Would your perception of BRK’s value increase at all?
Sure, but realistically, in (say) any given stretch the value doesn’t usually go up more than a certain amount.
In a year, maybe 10-12% tops, normally, so ten months till option expiration is almost certainly less than 10%.
(well, say inflation + 8%, give or take)
The visible value frequently changes more than that, but that’s usually more due to transient price changes in the portfolio or unusual underwriting results.
Even a fantastic year isn’t likely to increase the true lasting value per share more than 12% these days.
The most likely way value could rise a lot in a year is if the stock market plummets for a good long while.
Good for Berkshire to go shopping, and also good for buybacks.
In that case, you close the calls for a sweet profit during the low price stretch.
Equivalent to to selling high then buying back low.
Jim
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<<In the pull-down box for the dates, select “January 20, 2023”.
…>>
Thanks again for your help. I didn’t trade options before as I thought “there is no free lunch” so there must be a downside. However this trade has no downside to me as long as the stock price is above 310 as I want to sell the shares anyway.
I tend to write my covered calls for much shorter expirations (a month or two).
I usually go for two quarters out, 4-5-6 months.
Enough money to make it meaningful.
But if it doesn’t work (stock price rises meaningfully), I can roll up and out another 6 months, as in outcome (4) in the kickoff post.
The date I mentioned, next January, is longer than I’d usually do.
But $30 per B share is pretty good money.
Jim
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However this trade has no downside to me as long as the stock price is above 310 as I want to sell the shares anyway.
The best way to think of it is like this:
Ensure you’re really happy with the two main outcomes. Selling the stock, or keeping the cash. Ideally, equally happy.
Because, sure as shootin’, you’ll end up with the alternative that seems worse at the end date.
i.e., the downside is that you wanted to sell anyway, and you don’t end up selling, just pocketing some cash.
That will happen if the stock price is low, so you won’t want to sell then. You’ll have to wait a while longer.
Not a terrible downside, but it’s something to remember.
Jim
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"What is going on???
Berkshire does not rise 2.1% (the current state the moment I write) in a single day. It simply doesn’t do that. So: Why?"
Possibly something big only the insiders know?
as Bob Dylan says… “The Answer My Friend Is Blowin’ In The Wind”
ciao
Sold 1.5% of my Berkshire…not much…but my selling virtually guarantees the price will go up! haha
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Squint & the last 2+ yrs take you back to the 90’s.
https://stockcharts.com/h-sc/ui?s=BRK%2FA&p=W&st=199…
or you can go back to the 70’s & watch the large lime green lava lamp bubble rise to the top of the financials…
https://www.chartfleau.com/bubblechart
ciao
Jim,
Thank you so much for sharing the strategies you use with options.
Its something I am starting to use to juice a little more my portfolio and I am learning and experimenting with all this ideas.
One more time thanks for sharing your knowledge !!!
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Today’s PBV is 1.506.
In last 10 years, BRK has been above today’s PBV only 5% of the time.
It would be interesting to see the co-relation between inflation rate and BRK’s PBV
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an interesting thought… on inflation and a company with heavy assets
The outperformance continues.
Long may it last.
Hey Jim, I just can’t understand why BRK-A volume is so elevated. Today it was over 2,900 shares.
Would welcome and any thoughts.
Respectfully,
Paul(Long BRK-B shs&BRK-B Leaps)
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Hey Jim, I just can’t understand why BRK-A volume is so elevated. Today it was over 2,900 shares.
Would welcome and any thoughts.
I have no answer.
But, like my mom before me, I’m never at a loss for an opinion.
One idea: some sovereign wealth fund is accumulating.
They figure that in the long run the voting rights are worth more yet command no premium, so are the better choice.
The relative liquidity doesn’t matter so much because they’re not intending to trade in and out.
Or some very very rich buyout fund is going to attempt a takeover in a few years.
Seems unlikely, not because it’s impossible, but because they don’t have that kind of patience.
Or there was simply some change in the way that A-share volume was reported.
Jim
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Hey Jim, I just can’t understand why BRK-A volume is so elevated. Today it was over 2,900 shares.
Would welcome and any thoughts.
PS, for those not paying attention:
A-share volume since Feb 2021 has been around 1300 A-shares per day higher than the typical volume in the prior decade. Round numbers about 1660/day vs 340/day before.
That’s about $150bn worth of apparent “extra” trading so far. Or $180bn worth at today’s prices.
The first thought would be buybacks, but they’re not nearly that big.
Maybe it’s just a change in reporting of off-exchange trades or something meaningless.
Jim
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