Purchase BRK-B/RSP/QQQE or Cash Secured Puts

Stocks A to Z
1

Hello All,

So, I am re-adjusting my investments (see: https://discussion.fool.com/throwing-in-the-towel-kind-of-350923… ) and will be in a position to buy BRK-B / RSP / QQQE and am somewhat worried that I may be choosing an inopportune time to invest a large amount into those three.

What do you think of using cash secured puts laddered as a way into them.

For example, BRK-B is currently trading at 347.1 and you can sell the:

Date     Strike  %ITM    Cash Req'd  Target       %return  Annualized  Income/Contract  Days to Go  BRK FOMO
 May-22   347.5  -0.11%    $ 339.60   $     7.90    2.33%      29.35%   $       790.00          31     355.4
 Jun-22     345   0.61%    $ 335.40   $     9.60    2.86%      19.08%   $       960.00          59     354.6
 Sep-22     345   0.61%    $ 329.30    $   15.70    4.77%      12.00%    $    1,570.00         150     360.7

So I can sell the Sept-22 345 PUT, and get an entry of 329, or collect 4.77% (and be upset if BRK-B is greater than 360.7).

Likewise, for QQQE currently trading at 75.3, you can sell the:

Date     Strike  %ITM   Cash Req'd  Target       %return  Annualized  Income/Contract  Days to Go  QQQE FOMO
 May-22      75  0.40%   $   72.90   $     2.10    2.88%      39.71%   $       210.00          31       77.1
 Jun-22   75.13  0.23%   $   72.03   $     3.10    4.30%      29.78%   $       310.00          59      78.23
 Sep-22      75  0.40%   $   70.20   $     4.80    6.84%      17.46%   $       480.00         150       79.8

And thus the Sept-22 75 PUT, get an entry of 70.2, or collect 6.84% (and FOMO at 79.8).

Lastly, RSP is at 157.5, and you can sell the:

Date     Strike  %ITM    Cash Req'd  Target       %return  Annualized  Income/Contract  Days to Go  RSP FOMO
 May-22     157   0.34%    $ 154.00   $     3.00    1.95%      25.50%   $       300.00          31       160
 Jun-22     158  -0.30%    $ 153.10   $     4.90    3.20%      19.29%   $       490.00          59     162.9
 Sep-22     157   0.34%    $ 149.20   $     7.80    5.23%      13.20%   $       780.00         150     164.8

Again, looking at the Sept-22 157 PUT, get an entry of 149.2, or collect 5.23% (with FOMO at 164.8).

This would seem to be a better way into BRK-B/QQQE/RSP, and to capitalize on the current volatility. That said, this is money that is going to stay invested for a long time, and it might be simpler to just drop it in and leave it alone. The general idea is to keep writing the PUTS until I have to buy in, as a way to adjust my entry price.

As always, thoughts are appreciated.

–Gabriel

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2

What do you think of using cash secured puts laddered as a way into them.

Probably an ok strategy. I did something similar back in 2015 to establish my initial share position. Similar to now the price of BRK at that time was well above median P/B and I figured if I sold at/near the money puts for a few months I would get in at or below median. Within 2-3 months I was eventually assigned shares for an all in cost basis near median p/b for that quarter.

I had an opportunity to roll my wife’s 401Ks over in 2018 and 2020 and used a different strategy. It just so happened during those times BRK was trading below median p/b. In those instances I chose to purchase equal amounts over 6-12 months as long as it was trading at or below median p/b.

I’m sure you can appreciate the need to take the emotional aspect out of the trades from your long history with MI. I think I let fear get the best of me with the 401K rollover in 2020. I knew I should just buy all the BRK I wanted with p/b under 1.1 but I still stuck to the equal purchases. Hindsight is always 20/20 unfortunately.

Jeff

3

The three choices are all a little bit expensive, but the differences are so large that it should probably inform your choices.

RSP is the most overvalued compared to history.
I definitely wouldn’t own it.
In fact, I probably wouldn’t write puts either, as the strikes that I would pick would be so low that there would be no meaningful return.

QQQE is overvalued, but not painfully so.
A put with a decent return might still get you a slightly pricey entry, but done repeatedly it would probably work out OK over time.

Berkshire is more expensive than usual in recent, but arguable not actually overvalued relative to what it’s worth (rather than what it’s likely to trade for).
The problem here is that the premium on Berkshire puts is generally miserable. High strike or low.

Jim

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