Divi, what I don’t understand and baffles me: All those years you continually only critised Warren, all those years you posted how much Berkshire underperformed, all those years you claimed he is out of touch, don’t understand tech, is too old etc. etc.
That’s all ok, that’s your opinion, that’s something I can understand.
But: Why then do you continually follow/post his actions, apparently being interested in them instead of ignoring them, as it would be logical in light of all you posted all those years?
Interested in human psychology I am very curious what is behind this apparent contradiction, how you rationalize this for yourself. Would you would be willing to clarify?
This post reminds of something odd that happened to me earlier this week. I have also just posted about it on the options board.
I’ve been selling puts on OXY each month since the beginning of the year. So far, every time they’ve expired worthless. But oddly, earlier this week, someone exercised them and I was assigned. Now that isn’t a bad thing because it turns out the the stock is up more than a dollar since then, and considering the premium I received, it is a great deal for me. Especially since I am purposely accumulating OXY shares.
My question is, and the odd thing is, why on earth did anyone exercise those options? They literally lost money the second they chose to do it. Because the price of the shares plus the price of the option was higher than the price they got from me! They could have sold their shares (the ones they put to me) at market price, and sold the option at market price, and received MORE money that way. I don’t get it.
Depends… The price at the time of exercise, the option bid-ask, sometimes is so wide, or it could be part of the spread and may have done for tax purposes, etc. Unless I know more about the strike and the time of exercise…
For a stock like OXY, the liquidity is such that the bid/ask would never be wide enough for this to occur. Also, it doesn’t “depend” because as soon as the strike minus the option price goes lower than the stock price, the market maker will instantly correct it. That’s part of their business. And if the market maker doesn’t do it fast enough, the market will do it nearly as instantly. There are programs out there that are constantly on the lookout for “free money” and they snap up every opportunity as quickly as they present themselves.
Since I do spreads quite often I thought of this. But I still cannot think of any rational reason to ever do such a trade. Can you explain what exactly you are thinking here?
I don’t know … what tax purpose could cause someone to exercise something worth $2.96 to sell a stock at $62.50 when the stock is trading at $59.60-59.62? That’s a guaranteed 6-8 cent loss per share for no reason whatsoever. At least no reason I can think of at the moment.
OXY240621P62.5
Likely 6/17/24 9:40am
2.96+59.6=62.56 for $62.5 strike… is not inefficient at all. There are variety of reasons why it makes sense from the owner of the puts.
On spreads, someone might have bought a put at higher price and sold a put at lower price and simultaneously owning the stock. Now the investor may choose to exercise the put that he owns and assign the share and let the put he sold be assigned to him. This could be to harvest short-term/ long-term gains (not loss, because of wash rule) or bring down the cost basis and setup for future higher long-term gains. With the new settlement date, if you wait for the stock to be assigned on expiration date, and you have plans for the weekend, you may not have the choice to choose the correct tax lot. So that is another consideration.
When you sell an option be prepared. For example, on June 6th Friday I have sold a call (naked call) on CRWD because of the premium, and the strike price is so high, the stock kept rallying, still I didn’t realize it is going to be added to the SP500 and that decision is going to be announced after the close.
I was in front the terminal and monitoring the price action, so I sold a put as a hedge, but the premium is just not making sense, the $350 strike had close to $5 premium when the stock is trading below $346. I thought premium will evaporate as we get close to 4:00 PM, but the premium was stubbornly high. Luckily I recognized something is not adding up and decided to buy the stock. After hours SP500 decision was announced and CRWD moved up $35 or 10%. What would have been a $7000 loss, ended up being $750 profit, because I was in front of the terminal.
As a rule of thumb, it is better to close the options when your profit targets are met or you have earned 60%, 70%, 80% of premium. There are variety of things like M&A, surprise earnings announcement, CEO leaving can happen and in short-term the price will be impacted. Often novice option traders will make a short-term trade into a long-term position because they fail to recognize these risks and mostly were lucky on picking pennies in front of the roller. When you close the trade, you may leave few pennies or $$ but you control the outcome.
I thought of this, but it isn’t possible. Let’s say he had a put spread of 62.5/60. So he exercises the 62.50 one at a loss of 6 cents (by the way, I don’t have historical bid/ask info, but it was very likely higher than 6 cents at the time because at that moment, 9:40am, there was surge in demand for stock (possibly a Berkshire trade?) and the bid/ask of the puts likely dropped early in that minute, then, later during that minute, when the stock settled down, the bid/ask returned to normal). BUT the second part CAN’T be true. Who would exercise a 60 put at that time? That one certainly wasn’t worth exercising at all!
Also not a possibility. They could have sold the stock itself normally to harvest any gains. Without a 6 cent (or likely higher) additional short-term loss.
I haven’t had to chose tax lots since the 1-day settlement came into effect a few weeks ago. But in the past, I always choose my tax lots on the Monday following option expiry (if for example on expiry day I was assigned on calls I’ve written). Are you saying that choosing tax lots on the following Monday will not be permitted anymore???
This is generally true. But when I have deep out of the money puts short in my account, I kind of feel silly closing them out when they are almost sure to expire worthless at expiration. A perfect example are the Apple 125 puts that I sold a while back. They are very likely to expire worthless in Jan '26, so why bother buying them back know? Buying them back is functionally equivalent to “buying a 125 put”, and that isn’t something I would normally do right now. The only reason I could see for closing the trade early is the use that margin for other trades. And, obviously, if I need the cash reserve margin for other trades, I would close it.
For volatile things and options closer to the money I surely do this. For example I had sold some $102 strike XLE options in April and closed them very quickly (less than 2 weeks) at 58% gain. Oil is volatile, and XLE is volatile, so one big attack somewhere and XLE could have shot up. So I took my gain and moved along. Also, I don’t want to take the gains on XLE right now.
Right now, the most likely thing is that on 6/17 during a sudden demand for shares (possibly by Berkshire), there was a brief inefficiency by the marketmaker, and someone took advantage of it. I would do the same if I could react fast enough! Especially considering that the person who exercised had no idea the stock would move up by over $2 a few days later (even before expiry!) Works out well for me because I want more OXY shares and I got these relatively cheaply. My July set of puts on OXY are 57.5 strike. Since the beginning of the year, all my OXY puts have been 55s, 57.5s, and 62.5s. And I will place the next few months of put trades when an opportunity appears (like recession talk pulling oil down for a while, or similar).
I accumulated BRK for many years ago when Warren was optimistic. I was in the audience this year in the shareholder meeting in Omaha to show my respect to his genius for many years.
Contrary to popular opinion, Warren was incoherent at times and was drifting in his answers. He is 93 and this is expected. I have been slowly selling as Warren has turned conservative and gotten old. I still own quite a bit of BRK.
Not trusting in him being mentally clear his actions should be meaningless for you then, as you can’t be sure whether they’ll have positive or negative effects on the value of your remaining shares. To observe them and state “He bought more OXY” makes sense only if one believes he knows what he’s doing. Otherwise the logical thing would be to either completely ignore his actions or to research what YOU independently think of his actions and whether they might be reason to sell them (Actually, not trusting his actions should in itself be enough reason to sell them).
I tried to read this post twice and I am not sure what you are saying.
As per my post (scroll up), I stated clearly why I have been slowly selling BRK over last several years.
Yes, you did. I understand that.
That you don’t understand me is a pity but I don’t know how to better express my point (Maybe it’s a language problem, with me not being a native English speaker).
Go back and re-read it. Investor owns 62.5 and sold 60. Unless he closes $60, he will get assigned.
I understand. However, if you have taken the profit at a certain level, you would have closed it earlier. 
or alternatively, you would have rolled it. It took me many years to get to the point where I started closing the options I sold.
You want to keep your margin/ cash capacity available/ free. More importantly when you review your positions, you don’t have to look at them. Trust me, when you say you don’t, you do it. When you have large number of positions, multiple strategies, and a day job, preserving your energy is important. Focus your energy on managing risks, position where you can make more meaningful profit. Leave the pennies to the market makers.
It could be a simple mistake.
I don’t understand what you are getting at here. He SOLD the $60 put to someone. That put is essentially worthless (trading at 0.01/0.02 right now), and nobody, even by accident, will exercise it. Their broker likely wouldn’t even allow them to exercise it (sell someone OXY shares at $60 via exercise rather than sell the shares for $62+ normally). There’s not even a chance that he gets assigned, unless the stock drops more than $2.62 between now and tomorrow’s close.
Are you confusing these puts with calls? A $60 call would obviously be exercised and assigned this weekend.
Well, when it comes to LEAP puts, I usually sell them a couple of weeks after the new LEAPs start trading. Once there is sufficient liquidity in them, I made my trades (we’ve discussed that here a few times over the years). And that’s it. Basically it only happens at most twice a year. I also sometimes will enter into call spreads once or twice each year, but this round I forgot to do so (at least for Apple when it was low). The LEAP puts are an “easy” trade for me because I choose very conservative numbers most of the time. I’d say it works out well 4 out of 5 years, and not so well 1 out of 5 years. Those are good enough odds for me.
As far as OXY goes, I wanted to slowly increase my position and figured using puts is a decent way to do so. Obviously if the stock pops too quickly, it would have been far better to simply buy the shares outright. But since it’s “oily”, it’ll likely meander for a while with perhaps a slow upward trajectory. And in this particular case, I’m waiting for what Buffett is waiting for. He obviously thinks it’s a good business and will eventually result in some gains.
good and bad doesnt matter but best service
Market up. OXY is down. Is he buying more ?
What we know so far from Warren
- Vicky Hollub is good
- Lack of investments in Oil will start showing up in increased oil prices in 2025
- Jury is still out on Carbon capture business opportunity
- More EV, more renewables, better battery performance/cost.
- Peak oil is coming ?
With war Russian Oil supply is disrupted, and war in Middle east creates major uncertainty and Oil is not rallying, if the global growth slow a bit in 2025, why you think Oil prices are going to increase?
Separately, Oil stocks, as a whole are trading below long-term multiples.
Vickyn Hollub: “In February 2024, Occidental CEO Vicki Hollub predicted that oil prices could reach $80–$85 per barrel by 2025 due to an imbalance between global oil supply and demand. She said that the current market imbalance is a short-term demand issue that will become a long-term supply problem by the end of 2025. Hollub also emphasized the need for a balanced approach and the urgency of addressing fossil fuel supply challenges”
OXY at $55, below his purchase price from several years ago and his multi-year buying spree.
I don’t know what he sees in OXY. Wonder if he continuing to buy.
now $53.7. Mistake or opportunity ?