2024 Q4 and Annual Report

[Munger_Disciple]

2 minutes ago, DooDiligence said:

 

Roll over their profile on the left of a post and you'll get a popup. The option is there. The pun was inadvertent but kinda works.

 

Done, thanks!! 

[boilermaker75]

3 hours ago, coc said:

 

I've read some nonsense on this board but this might be the worst. If I sell a $3 call and buy it back for $6, I've lost $3!! The next transaction is completely independent, a new P/L. So the question remains, how can you "guarantee" I will make money net of these potential rolling losses? Your strategy would have been exploited long ago by hedge funds if it were valid. 

 

Let's do an example for others who might be reading and potentially pursuing this (bad) advice:

 

Today a 12/31/25 call on the SPY at 700 goes for $3.22 according to my broker. Absolute peanuts by the way, 0.5%. But if the index goes to 650 by midyear, the call will trade up and I'll have to buy it back higher to continue to stay the same distance out of the money. (Or I get closer and closer to losing my position, which this fella says you don't want to do.)

 

So I sell it for $3.22, buy it for, say, $6.44, then sell a new one at 750 for 6/30/26 for $3.22. Where is my extra profit?  

 

This whole strategy is not only not "guaranteed" to make money, it runs a risk of losing you some money, unless you can predict the market, in which case you should be buying options.

 

 

73Reds is correct. I do this often with BRKB. Sure initially you buy the call back at a loss, but you immediately sell a further out call sometimes at a higher strike price and for a higher premium than the one you just bought back because it has no time value left on it.

[73 Reds]

2 minutes ago, boilermaker75 said:

 

73Reds is correct. I do this often with BRKB. Sure initially you buy the call back at a loss, but you immediately sell a further out call sometimes at a higher strike price and for a higher premium than the one you just bought back because it has no time value left on it.

Thanks for that @boilermaker75 but I'm going to excuse myself from all the grief you're about to get!

[boilermaker75]

1 hour ago, Munger_Disciple said:

 

It's called picking up pennies in front of a steamroller. Many went bankrupt overdoing it. Here is one:

 

https://en.wikipedia.org/wiki/Victor_Niederhoffer

 

It is called being in the insurance business. 

[boilermaker75]

1 hour ago, John Hjorth said:

After reading the latest exchange here in this topic - which I certainly appreciate, thank you, I simply can't help to ask this question to Mike [ @boilermaker75 ], for perspective :

 

Are you in any of the Berkshire puts by now, and what is your perspective here, by now?

 

[Maybe not a fair question from my side, but then again, I know you know you have the absolute freedom, to reply in what ever way that you may see fit, despite how the question is asked -  - Thank you in advance.]

 

@John Hjorth I am currently short 465-strike, 480-strike, and 485-strike Feb 28 expiration puts on BRKB. I also have covered calls written at a 485-strike price on BRKB on a position I was put to a couple weeks ago. I am currently 100% invested, so this is how I effectively margin without being on margin.

 

Edit: 80% of my portfolio is BRKB because it has grown and I don't want to incur capital gains tax.

Edited Wednesday at 10:16 PM by boilermaker75

[gfp]

This article has some nice tables and graphics detailing the results from GEICO over the last few years - worth a read for Berkshire fans

https://rationalwalk.com/berkshire-hathaways-2024-annual-report/

[cubsfan]

39 minutes ago, 73 Reds said:

Thanks for that @boilermaker75 but I'm going to excuse myself from all the grief you're about to get!

 

Poor guy, but what a great resource he is.

[RichardGibbons]

1 hour ago, coc said:

Another way to understand the idiocy of 73 Red's idea is that buyers in the SPY options market are guaranteed to cede some money to you net, if you just pursue his strategy! Must be a lot of dummies out there! 

 

The degree of analytic rigour in 73 Red's analysis is pretty clear when when he says that the economic outcome from covered calls is different than short puts.

 

Really, I think anyone who's spent a year or two working with options will understand the issues with his argument, and a this point, those who are new to options should have serious concerns about his credibility on this subject.

[backtothebeach]

1 hour ago, boilermaker75 said:

I am currently short 465-strike, 480-strike, and 485-strike Feb 28 expiration puts on BRKB. I also have covered calls written at a 485-strike price on BRKB on a position I was put to a couple weeks ago. I am currently 100% invested, so this is how I effectively margin without being on margin.

Just digging around randomly:

 

boilermaker75

Posted June 9, 2022

I wrote June 10 expiration 302.5 and 305 puts yesterday.

 

If instead, you had bought the same notional amount of BRKB on margin, you’d be $190 ahead, minus around $60 margin interest equals $130. Do you think you have taken in $130 in BRKB option premium in this time?

 

Same with AMZN, selling short term $115 puts for a few cents, AMZN is now at $215.

 

It’s a fun and sometimes satisfying way to make a few extra bucks on margin, but not very efficient. Main function for me has been to distract/entertain me and prevent me from touching my long-term investments.

[73 Reds]

35 minutes ago, RichardGibbons said:

 

The degree of analytic rigour in 73 Red's analysis is pretty clear when when he says that the economic outcome from covered calls is different than short puts.

 

Really, I think anyone who's spent a year or two working with options will understand the issues with his argument, and a this point, those who are new to options should have serious concerns about his credibility on this subject.

@RichardGibbons respectfully I think you missed my point.  It has nothing to do with economic outcomes.  Rather it is the work involved  when you already hold the index as opposed to the work involved to best the index while also having to generate sufficient net premiums to cover the dividends you forego by not holding the index.    

[backtothebeach]

@73 Reds so how long have you done this with real money and by how much have you bested the index in % p.a. by selling calls?

 

I think you would have to agree that the people/market makers selling these calls to you are not in the business of giving money away. You don't have a statistical advantage.

 

But maybe you are better at predicting short/medium term market swings, "picking your spots". Or maybe you just think that, because only once in 10 years the market goes crazy right after you picked your spot, and it has not happened yet.

[boilermaker75]

1 hour ago, RichardGibbons said:

 

The degree of analytic rigour in 73 Red's analysis is pretty clear when when he says that the economic outcome from covered calls is different than short puts.

 

Really, I think anyone who's spent a year or two working with options will understand the issues with his argument, and a this point, those who are new to options should have serious concerns about his credibility on this subject.

 

A covered call and a put pretty much result in the same outcome.

[Munger_Disciple]

2 hours ago, boilermaker75 said:

 

It is called being in the insurance business. 

 

Yeah many insurers had got into deep trouble or gone kaput over the years too. I think you missed this part of my previous post: Many went bankrupt overdoing it.

 

If you have any proof that you had beaten the S&P 500 index enhanced by an option writing strategy consistently for a very long time, I am all ears! That was the original premise of a poster on this thread.  

[boilermaker75]

53 minutes ago, backtothebeach said:

Just digging around randomly:

 

boilermaker75

Posted June 9, 2022

I wrote June 10 expiration 302.5 and 305 puts yesterday.

 

If instead, you had bought the same notional amount of BRKB on margin, you’d be $190 ahead, minus around $60 margin interest equals $130. Do you think you have taken in $130 in BRKB option premium in this time?

 

Same with AMZN, selling short term $115 puts for a few cents, AMZN is now at $215.

 

It’s a fun and sometimes satisfying way to make a few extra bucks on margin, but not very efficient. Main function for me has been to distract/entertain me and prevent me from touching my long-term investments.

 

 

 

With BRKB possibly. I just don't do it continuously and don't want to spend the time to go back and look at what I have done. With a stock like KO there is no doubt I am way ahead than with just owning the stock.

 

It is not a few cents per share. It is a few dollars per share over the space of a week or less sometimes.

 

Yes it might be for the entertainment but it is essentially how I get into my long-term positions. I think of writing a put as putting in a limit order. There was only one time this did not work, when I was trying to buy some MCD around $95 and my put expired and I never got my MCD.

[flesh]

Let’s say you sell Brk covered calls 10 days or less expiration at 4% strike or more above current prices and never sell them during earnings releases. At 10% of more annualized. 
 

What’s the logic of how this fails? 
 

trade costs? Brk jumps 20% in a day every ten years? 
 

Curious. Anyone have any idea beyond efficient market? 
 

 

[boilermaker75]

15 minutes ago, Munger_Disciple said:

 

Yeah many insurers had got into deep trouble or gone kaput over the years too. I think you missed this part of my previous post: Many went bankrupt overdoing it.

 

If you have any proof that you had beaten the S&P 500 index enhanced by an option writing strategy consistently for a very long time, I am all ears! That was the original premise of a poster on this thread.  

 

I don't know abut SP 500 index and writing options.

 

With my core BRKB position, I have never been called out. I have had to buy back calls and rewrite them at a later date but eventually they expired. (Note I always had a positive net when I bought back the options and wrote options at a future expiration date because of the time values.) So my return is whatever the return is for BRKB plus whatever I have gotten writing calls. I don't write calls on this core position often, just when it seems unlikely that I will get called out.

 

28 years of trading options and I am not bankrupt yet!

 

Edit: It is a strategy Buffett used to use.

Edited yesterday at 12:47 AM by boilermaker75

[Munger_Disciple]

32 minutes ago, boilermaker75 said:

I don't write calls on this core position often, just when it seems unlikely that I will get called out.

 

28 years of trading options and I am not bankrupt yet

 

Edit: It is a strategy Buffett used to use.

 

You aren't overdoing it obviously. Given that you aren't doing it often, I doubt it made that much of a difference to your overall BRK return. I would be interested in your return on BRK if did nothing with options vs. BRK return with your option writing, both cumulatively and annualized. In any case, it doesn't say anything about an index buy/write strategy's merits or lack there of.

I know Buffett wrote some puts on KO way back when he wanted to increase his position. Other than that I am not aware of any Buffett option strategy you are referring to. Please provide a reference. 

Edited yesterday at 01:16 AM by Munger_Disciple

[coc]

3 hours ago, boilermaker75 said:

 

73Reds is correct. I do this often with BRKB. Sure initially you buy the call back at a loss, but you immediately sell a further out call sometimes at a higher strike price and for a higher premium than the one you just bought back because it has no time value left on it.

 

I assure you 73Reds is NOT correct. Just because you have executed these transactions does not mean you are guaranteed any sort of extra profit on them. I'm glad your BRK stuff has worked out. With other stocks, with the SPY, at other times and places, there is absolutely a risk being taken. This is not debatable, I'm sorry. You could make billions of dollars running this strategy at a quant desk if it were real. 

[backtothebeach]

30 minutes ago, flesh said:

Let’s say you sell Brk covered calls 10 days or less expiration at 4% strike or more above current prices and never sell them during earnings releases. At 10% of more annualized. 
 

What’s the logic of how this fails? 
 

trade costs? Brk jumps 20% in a day every ten years? 
 

Curious. Anyone have any idea beyond efficient market? 

 

You need to do this regularly to get any kind of meaningful return, since the 10 day 4% OTM call yields you only 0.1-0.15% each time.
 

If you do this in practice, eventually you'll run into the situation where BRKB runs up 8-10% in a week and then it is a shitty choice between taking the loss and the stock maybe whipsawing, or rolling the strike and waiting for a pullback and maybe the stock runs up another 4% and then the choice is even shittier.

 

Anyway, this is my last post on the subject, thank you to @boilermaker75 for elaborating.

[boilermaker75]

8 minutes ago, Munger_Disciple said:

 

You aren't overdoing it obviously. Given that you aren't doing it often, I doubt it made that much of a difference to your overall BRK return. I am glad that it is a positive return for you. But as you pointed out it doesn't say anything about index buy/write strategy's merits or lack there of. 

I know Buffett wrote some puts on KO way back when he wanted to increase his position. Other than that I am not aware of any Buffett option strategy you are referring to. Please provide a reference. 

 

Here is just a quick look, see page 18,

 

https://www.berkshirehathaway.com/letters/2008ltr.pdf

 

Edit: It will probably take my old memory a while to retrieve it, but I probably have somewhere, maybe a book, that talks about option trading in his early days.

Edited yesterday at 01:16 AM by boilermaker75

[coc]

You guys need to understand that unless a market is *grossly* inefficient (and that is a true rarity) there is no such thing as riskless (or "guaranteed") profit (and yes, 73Reds, mitigating SPY losses would also be economically equivalent to profit).

[Munger_Disciple]

2 minutes ago, boilermaker75 said:

 

Here is just a quick look, see page 18,

 

https://www.berkshirehathaway.com/letters/2008ltr.pdf

 

Edit: It will probably take my old memory a while to retrieve it, but I probably have somewhere, maybe a book, that talks about option trading in his early days.

 

Yes I remember this now. But it has nothing to do with the original discussion of beating the index with buy/write. 

[John Hjorth]

This discussion right now going on here - in a way - has gone - by now, totally - overboard - materially, because of of me initiating it! - And let me here just say that I by asking Mike [ @boilermaker75] ] the question I did, triggered the communication. So, I triggered the communication and exchange, certainly not Mike [ @boilermaker75 ]!

 

I hereby sincere apologize for that. It was unintended, especiallly towards Mike [ @boilermaker75 ].

 

- - - o 0 o - - -

 

Here, it's now about 2:20 AM, and life is just so great, if one thinks carefullly about it.

[Munger_Disciple]

@boilermaker75 Can you share the BRK return if you did nothing with options vs. the return with your option writing, both cumulatively and annualized?

[boilermaker75]

7 minutes ago, Munger_Disciple said:

@boilermaker75 Can you share the BRK return if you did nothing with options vs. the return with your option writing, both cumulatively and annualized?

 

I don't keep track and that would be a lot of work for me to come up with.