2024 Q4 and Annual Report

[Munger_Disciple]

1 minute ago, gfp said:

 

 

 

I don't believe in being so rigorous and serious about our methods.  The most important thing is to find a style / strategy that works for you personally.  "I don't wanna" is a perfectly good reason not to do it another way that may be comparable in risk and the appropriate benchmark.

 

If you find a style that works for you over time you will have plenty of resources to pay your bills and enjoy the process.

 

[boilermaker75]

5 minutes ago, gfp said:

 

 

 

I don't believe in being so rigorous and serious about our methods.  The most important thing is to find a style / strategy that works for you personally.  "I don't wanna" is a perfectly good reason not to do it another way that may be comparable in risk and the appropriate benchmark.

 

If you find a style that works for you over time you will have plenty of resources to pay your bills and enjoy the process.

 

Well said @gfp There are many on this board who do, and will always do, a lot better than I do. It is clear from the performance poll every year. Do I need to do better? No, I still have my day job, which I tap dance to at the age of 71 and I hope to do it as long as Brenda Milner has!

 

https://www.amightygirl.com/blog?p=25635

 

And I know I do better than if I owned the S&P. Plus I have fun doing it when I have the time.

[DooDiligence]

17 minutes ago, boilermaker75 said:

 

Thanks for helping clarify GFP. 

 

I am a child of depression era parents. It is in my DNA to not be mortgaged, margined, etc., You can say, "but you are effectively margining." But somehow it is psychologically different for me.

 

I actually did, and do understand what gfp said about your options and ownership strategy, and I enjoy and respect all of your writing. It fits well with my own ideas (sorry to tarnish you by associating it with what goes on in my head but there it is). I too am chronically debt averse. And to go one further, whenever I pass a vending machine, I glance at the coin return and occasionally stick my fingers in to see if there's anything there. Not trying to make a joke here because it's true, and I need to stop it because it's embarrassing (OK, that last part actually was an attempt to create a punchline).

Edited yesterday at 03:47 PM by DooDiligence

[villainx]

42 minutes ago, boilermaker75 said:

No, I still have my day job, which I tap dance to at the age of 71 and I hope to do it as long as Brenda Milner has!

 

https://www.amightygirl.com/blog?p=25635

thanks for this!

 

so … Warren (and many posters here) still has a ways to go!

 

 

[boilermaker75]

3 minutes ago, villainx said:

thanks for this!

 

so … Warren (and many posters here) still has a ways to go!

 

 

 

It would be great if Warren can keep going as long as Brenda has!

 

I was researching for a book I was writing about 10 years ago and looking into memory. I was reading some seminal work Brenda did starting in 1953. Then I was googling something about Brenda's work and this picture pops up of her lecturing in 2014! So every time I give a talk on this I check to see if Brenda is still with us and so far she is. She will be 107 in July.

[Martian]

22 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.

 

This covered call trick mainly relies on theta decay. So, you don’t sell the calls one year out. You usually sell them under two months. For ex BRK.B 43 DTE 530 call is $2.50 (0.18 Delta). You can pick the strike depending on how aggressive you are. In a taxable account, you can be aggressive as you don’t have to worry about taxes.

 

You can let it expire if it is OTM or you can close it earlier for a pre-determined profit. Say you made 30% /50%  much earlier (like a week). And you open another on the day when the stock goes up.

 

If it is ITM, you roll it. Of course, you lose it in the first transaction. But you are betting that the stock will not go crazy again. It is like losing the battle, but winning the war. Another way to recover is to sell only few options as an initial position and increase it when you roll. Say if you have 1000 BRK/B shares, you sell 3 options first and when you roll, you sell 6.

 

The underlying stock selection is very important. If you choose SPY or BRK/B most of the days they won’t move much, but the premiums will be lower. If you do it on a meme stock, the premiums will be higher.

 

All of the above options are when you don’t want to lose the underlying. But there are few reddit groups (thetagang/optionswheel) who sell CCs aggressively for more premium. When they get called they turn around and sell cash secured puts. Once assigned with the puts they sell covered calls again. They call it “The Wheel”.

 

But selling puts come with it’s own risks as the stock might crater and you are left holding the bag and can not sell CC above your assigned price. If you do, you will get low premium and give up the upside.

 

You sell CCs on the stocks you want to own (SPY/BRK) so that you will be in the market and have some upside and don’t mind if it goes down.

 

There are few ETFs like QYLD/JEPI who do covered calls.

 

That said, with all the above monkey business, in all of the back testing, buy and hold beats selling CCs long term. At best one can expect to make low single digits. It may be worthwhile for somebody with a large portfolio and some time on their hands.

   

It is similar to picking stocks to beat the index (buy low, sell high). Some people manage to pull it off. Otherwise we won’t be here discussing stocks. The same can be applied to selling CCs (Sell high, buy low).

 

[boilermaker75]

@Martian I love the cartoon and the movie wasn't half bad. I love the out take at the end when they surprised Jennifer with the theme to Friends.

 

Edit: 90% of my plays are with an expiration of less than 2 weeks. Often a week or less.

Edited 23 hours ago by boilermaker75

[coc]

1 hour ago, Martian said:

This covered call trick mainly relies on theta decay. So, you don’t sell the calls one year out. You usually sell them under two months. For ex BRK.B 43 DTE 530 call is $2.50 (0.18 Delta). You can pick the strike depending on how aggressive you are. In a taxable account, you can be aggressive as you don’t have to worry about taxes.

 

You can let it expire if it is OTM or you can close it earlier for a pre-determined profit. Say you made 30% /50%  much earlier (like a week). And you open another on the day when the stock goes up.

 

 

If it is ITM, you roll it. Of course, you lose it in the first transaction. But you are betting that the stock will not go crazy again. It is like losing the battle, but winning the war. Another way to recover is to sell only few options as an initial position and increase it when you roll. Say if you have 1000 BRK/B shares, you sell 3 options first and when you roll, you sell 6.

 

 

The underlying stock selection is very important. If you choose SPY or BRK/B most of the days they won’t move much, but the premiums will be lower. If you do it on a meme stock, the premiums will be higher.

 

 

All of the above options are when you don’t want to lose the underlying. But there are few reddit groups (thetagang/optionswheel) who sell CCs aggressively for more premium. When they get called they turn around and sell cash secured puts. Once assigned with the puts they sell covered calls again. They call it “The Wheel”.

 

 

But selling puts come with it’s own risks as the stock might crater and you are left holding the bag and can not sell CC above your assigned price. If you do, you will get low premium and give up the upside.

 

 

You sell CCs on the stocks you want to own (SPY/BRK) so that you will be in the market and have some upside and don’t mind if it goes down.

 

 

There are few ETFs like QYLD/JEPI who do covered calls.

 

 

That said, with all the above monkey business, in all of the back testing, buy and hold beats selling CCs long term. At best one can expect to make low single digits. It may be worthwhile for somebody with a large portfolio and some time on their hands.

 

   

It is similar to picking stocks to beat the index (buy low, sell high). Some people manage to pull it off. Otherwise we won’t be here discussing stocks. The same can be applied to selling CCs (Sell high, buy low).

 

 

 

 

This is excellent Martian and you've explained in much more detail than I have the patience for why no options strategy currently known to man is "guaranteed" to add to your P/L, it is a strategy that takes skill, luck, and intelligent risk-taking just like any other. Glad we've put this latest COBF nonsense to bed.

[Munger_Disciple]

55 minutes ago, coc said:

 

This is excellent Martian and you've explained in much more detail than I have the patience for why no options strategy currently known to man is "guaranteed" to add to your P/L, it is a strategy that takes skill, luck, and intelligent risk-taking just like any other. Glad we've put this latest COBF nonsense to bed.

 

I would second this; excellent explanation & overview of options @Martian!

 

I especially liked this part: That said, with all the above monkey business, in all of the back testing, buy and hold beats selling CCs long term. All the studies I have seen confirm this plus intuitively it makes a great deal of sense. 

Edited 21 hours ago by Munger_Disciple

[boilermaker75]

@Martian I shouldn't perpetuate this but how is "But selling puts come with it’s own risks as the stock might crater and you are left holding the bag" any different than buying the stock? Other than you are a little better off writing the put because you have the put premium.

[sleepydragon]

You guys have to take interest rate into account when looking at call options. Current interest rate is 4%. That means when market maker writes a call he needs to borrow at 4% to finance his stock purchase. Or think in another way, you have 50k cash earning 4% and can use the interest earned to finance part of your call. So writing calls seem to be good deal only to many now because interest rate is higher now.

 

I think writing calls (and puts) only make sense if you do it on a basket of stocks. Historically you make a little 2% extra — this is based on sell side backtests. This is a product commonly sold by many banks’s private wealth department.

 

buying calls is the smartest thing you can do, if you are right. It’s a gift to retail investors. I dont do it cuz i am not that smart.. but people make fortunes buying calls.

 

selling puts makes sense too. You can have your cash earning 4% plus getting put premium. When things go bad, you buy some stocks. But Brk’s put is too cheap nowadays, partially because interest rate is high and vol is low. You make like what, 2% writing a 1 year 10% otm put, i think? Not worth doing really, imo

 

 

[villainx]

16 minutes ago, sleepydragon said:

I dont do it cuz i am not that smart.. but people make fortunes buying calls.

 

No other commentary other than this might be partly survivor or winner bias?  

 

 

[73 Reds]

41 minutes ago, villainx said:

 

No other commentary other than this might be partly survivor or winner bias?  

 

 

Anyone who is interested in options may want to read "Options as a Strategic Investment" by Lawrence McMillan.  It is by far the best book I ever found on options trading.

[sleepydragon]

1 hour ago, villainx said:

 

No other commentary other than this might be partly survivor or winner bias?  

 

 

my point is really that buying calls is much closer to a free lunch than selling a call, because of the huge leverage to upside and downside capped at zero.

selling a call is dumb, unless you do it systematically on a basket of stocks .  

[sleepydragon]

1 hour ago, villainx said:

 

No other commentary other than this might be partly survivor or winner bias?  

 

 

not necessarily surivivor bias. a lot of people buy calls and most lose money. but there are still people who use calls to bet on high confidence ideas..(insider trading, which is illegal of course,  is one example).

[73 Reds]

4 minutes ago, sleepydragon said:

my point is really that buying calls is much closer to a free lunch than selling a call, because of the huge leverage to upside and downside capped at zero.

selling a call is dumb, unless you do it systematically on a basket of stocks .  

I beg to differ.  The book I cited earlier is a great source for options trading.

[sleepydragon]

23 minutes ago, 73 Reds said:

I beg to differ.  The book I cited earlier is a great source for options trading.

When i worked at an option market making desk at credit suisse (now long gone, hahaha), this is the book i was asked to read:

Option Volatility and Pricing: Advanced Trading Strategies and Techniques, 2nd Edition

https://a.co/d/4uNGXPC
 

[73 Reds]

Just now, sleepydragon said:

When i worked at an option market making desk at credit suisse (now long gone, hahaha), this is the book i was asked to read:

Option Volatility and Pricing: Advanced Trading Strategies and Techniques, 2nd Edition

https://a.co/d/4uNGXPC
 

I recall coming across that book - I'm sure many of the respective theories overlap.  This issue is far too elaborate for this forum but I'd be glad to discuss by DM if you wish.  I've been using options professionally for decades but not all in the traditional sense.

[villainx]

37 minutes ago, 73 Reds said:

I beg to differ.  The book I cited earlier is a great source for options trading.

I don’t know about beating SP, but I do assume it’s viable. My friend “FIRE” for close to 7 years now, and he’s being doing options to sustain his retirement. He shared some strategies but while I don’t mind boosting my performance, it’s just too much for me. Plus I do assume being better at buy and hold would lead to better performance over time. 
 

I did ask him to manage some money with his strategy but he declined. Among reason was that sizing makes a difference for what he does. Not sure of his overall performance but I assume not bad because … even with FIRE he’s not cheap when we hang out and picks up a fair share of the tab.

[DooDiligence]

1 hour ago, sleepydragon said:

not necessarily surivivor bias. a lot of people buy calls and most lose money. but there are still people who use calls to bet on high confidence ideas..(insider trading, which is illegal of course,  is one example).

 

I got lucky when I bought EW LEAP's after taking an equity position in 2012. The company was battling Medtronic over TAVR patent infringement. Edward's prevailed and was set up to win more cases, which they did. The price of the stock shot up and I made out like a bandit on the LEAPS. I tried to recreate this with Alcoa and another one that I can't remember and lost on both attempts. I won't say never again but I am more cautious now. Been tempted to try this a few times and thankfully passed. TBF, I'm simply not good at predicting directional moves.

[sleepydragon]

What about this idea:

Suppose you are like me, who’s already 75% net-worth invested in brk.
One could sell 100 shares of Brk atm put with strike $500 and 1 year expiration, and pocket about $2000-2500 put premium. At the same time you put $50000 in Tbills earning 4%. 
One year later, if Brk is higher than current price. You have earned 8% (2000+ 2000/50k). If Brk is lower, you will spend the 50k to buy Brk stocks. HOWEVER, you can sell these stocks immediately if you want - you will lose some money but since you already have a huge BrK existing holdings that has already appreciated a lot, it’s probably not a big deal to feel bad about. You can also keep the stock of course.

It could also be better to sell the two years put. The amount of the puts to sell can be capped at 10% of your existing brk shares (so you will increase your brk shares in portfolio by 10% if brk dont go up any in two years)

What u guys think?

[boilermaker75]

@sleepydragon "selling puts makes sense too. You can have your cash earning 4% plus getting put premium. When things go bad, you buy some stocks. But Brk’s put is too cheap nowadays, partially because interest rate is high and vol is low. You make like what, 2% writing a 1 year 10% otm put, i think? Not worth doing really, imo"  

 

Unless you are fully invested at 4%?

[73 Reds]

40 minutes ago, boilermaker75 said:

@sleepydragon "selling puts makes sense too. You can have your cash earning 4% plus getting put premium. When things go bad, you buy some stocks. But Brk’s put is too cheap nowadays, partially because interest rate is high and vol is low. You make like what, 2% writing a 1 year 10% otm put, i think? Not worth doing really, imo"  

 

Unless you are fully invested at 4%?

Yeah, whether and to what extent you utilize options depends on your specific objectives and whether the premiums justify the risks.  You can easily manufacture a "dividend" with your BRK holdings by selling OTM covered calls.  The few % you make could be the equivalent of what you might receive if a dividend were actually paid.  If you are ambivalent about losing the stock at the strike price, covered calls make sense   When selling puts, higher interest rates do sweeten the prospects when you can earn interest and option premiums on the same money.  But IMO options can be used in a variety of ways in the RE business to make a material difference when it comes to returns.

[sleepydragon]

1 hour ago, boilermaker75 said:

@sleepydragon "selling puts makes sense too. You can have your cash earning 4% plus getting put premium. When things go bad, you buy some stocks. But Brk’s put is too cheap nowadays, partially because interest rate is high and vol is low. You make like what, 2% writing a 1 year 10% otm put, i think? Not worth doing really, imo"  

 

Unless you are fully invested at 4%?

Right. This is for those who habe some cash on the side paying for future expenses or emergency fund, but now can also use that cash as an “insurance float”. In the event that put option is exercised and also I need to use that cash for certain things, i can raise money selling other stocks in the portfolio.

[boilermaker75]

@sleepydragon and @73 Reds My playing around with options predated those books! I started with LEAPS by Harrison Roth and Options for the Stock Investor by James Bittman. I haven't looked at those book for 30 years, so they were probably good for me at the time. I have, and long ago read, the McMillan book. I'll Have to get the Option Volatility & Pricing Book as I haven't seen that one.