value-is-what-you-get Posted February 2, 2009 Share Posted February 2, 2009 Let's not forget about the tax implications here too. From "The Snowball" someone was quoted as saying that not only does WB know the tax laws inside out but he can play them like a fiddle! When the puts are marked-to-market annually, the difference is a loss on the income statement. A current expense for which we paid negative cash (received a premium). This protects income generated from other sources from paying tax. I think this put option is a real work of art. In one fell swoop it highlights the voting vs weighing aspects of Mr Market (recent negative commentary linking it to a reduced stock price), the greed vs fear aspects regarding purchase motivations (someone bought it!) and a nod to the sometimes odd benefits of accounting rules and the tax man who "requires" Berkshire to shelter income from taxes by marking-to-market. A University course could be taught on this one transaction. I almost want to applaud!! Link to comment Share on other sites More sharing options...
randomep Posted July 7, 2022 Share Posted July 7, 2022 dumb question, what did WEB do with puts? did he sell puts? or did he buy puts? Link to comment Share on other sites More sharing options...
gfp Posted July 7, 2022 Share Posted July 7, 2022 If the question is from 2009, he was most likely selling puts on BNSF. Buffett sold a ton of puts on BNSF that he intended to have executed as a way to accumulate the stock. I don't remember much put buying by Buffett. Link to comment Share on other sites More sharing options...
randomep Posted July 7, 2022 Share Posted July 7, 2022 4 hours ago, gfp said: If the question is from 2009, he was most likely selling puts on BNSF. Buffett sold a ton of puts on BNSF that he intended to have executed as a way to accumulate the stock. I don't remember much put buying by Buffett. ok I think I see something about it in the 2008 letter, man someone should teach a college course on his letters...... Link to comment Share on other sites More sharing options...
gfp Posted July 7, 2022 Share Posted July 7, 2022 yeah, just google, there were a ton of articles at the time. Buffett learned it from Boilermaker Mike... the rest is history https://www.google.com/search?client=safari&rls=en&q=buffett+sells+puts+on+Burlington&ie=UTF-8&oe=UTF-8 Link to comment Share on other sites More sharing options...
aws Posted July 8, 2022 Share Posted July 8, 2022 Not sure how much value there is in dissecting a 13 year old post, but if it's referring to stock put options like the BNSF trade then it's not accurate. You don't get to write off any losses on short puts for tax purposes until you close the position, which Berkshire obviously didn't do. They did have all those index put options around that time as well. He shorted puts with like 15 year durations on a variety of indices on terms where they received all the collateral up front, would never be required to post any collateral of their own for mark-to-market losses over time, and they were European style so they could not be exerised early. Essentially it was a bet that Black-Scholes option pricing wasn't really accurate over very long time frames, which I would intuitively agree with. When the buyer literally has no chance of a profit unless the index is lower 15 years later after issuance it feels hard to lose. I wish I could short Berkshire puts on those terms. Link to comment Share on other sites More sharing options...
boilermaker75 Posted July 8, 2022 Share Posted July 8, 2022 21 hours ago, gfp said: yeah, just google, there were a ton of articles at the time. Buffett learned it from Boilermaker Mike... the rest is history https://www.google.com/search?client=safari&rls=en&q=buffett+sells+puts+on+Burlington&ie=UTF-8&oe=UTF-8 I'm not sure about that, but I was writing puts on BNSF along with Warren. That was about the surest trade I have ever seen. Link to comment Share on other sites More sharing options...
randomep Posted July 9, 2022 Share Posted July 9, 2022 23 hours ago, boilermaker75 said: I'm not sure about that, but I was writing puts on BNSF along with Warren. That was about the surest trade I have ever seen. well, someone took the other side of your trade so to him, it was not the surest thing ....... sorry for stating the obvious Link to comment Share on other sites More sharing options...
boilermaker75 Posted July 9, 2022 Share Posted July 9, 2022 2 hours ago, randomep said: well, someone took the other side of your trade so to him, it was not the surest thing ....... sorry for stating the obvious No problem. There always has to be a patsy at the table! Link to comment Share on other sites More sharing options...
randomep Posted July 10, 2022 Share Posted July 10, 2022 18 hours ago, boilermaker75 said: No problem. There always has to be a patsy at the table! Boilermaker you mind explaining to me your rationale for your puts? Did Buffett telegraph his intention to buy Burlington when you sold your puts? Link to comment Share on other sites More sharing options...
boilermaker75 Posted July 10, 2022 Share Posted July 10, 2022 2 hours ago, randomep said: Boilermaker you mind explaining to me your rationale for your puts? Did Buffett telegraph his intention to buy Burlington when you sold your puts? It was a risk arbitrage play on my part. I believe BRKB had already started the acquisition process of BNI (actual ticker), or at least of a substantial amount of BNI stock. I started writing puts on Aug 13, 2007 at a strike price of $80. I continued till the deal was closed at strikes ranging from $75-$95, Link to comment Share on other sites More sharing options...
Recommended Posts
Create an account or sign in to comment
You need to be a member in order to leave a comment
Create an account
Sign up for a new account in our community. It's easy!
Register a new accountSign in
Already have an account? Sign in here.
Sign In Now