Subject: Calls: end of an era?
I was looking at the implied interest rates built into the prices of various Berkshire calls.
They are all high enough now that it's no longer obvious that it's a good investment strategy.

Obviously, it's real rates that matter.
An interest rate of 6% is attractive if monetary inflation is 5%, but not attractive if monetary inflation is 1%.

By "monetary inflation", I mean the fall in the general purpose purchasing power of a US dollar.
If oil prices spike the average Joe might be paying more each month to do what he did the month before, but that's a price change specific to one item.
If you divide all price changes into the components of "what happened in general" plus "what idiosyncratic change happened to t his particular good", inflation is now quite muted.
Basically, if you know nothing else about a company, you should generally expect all their costs and prices and profits to go up by an amount equal to the monetary inflation rate.

The best measure of this I've found is the New York Fed's "Underlying Inflation Gauge", which coincidentally they just discontinued and replaced.
The final figure, released Oct 12 for September prices versus a year prior, was either +2.87% or +2.15%, depending on which of their two calculation methods you preferred.
In short, "general" inflation has collapsed.

But interest rates charged in the market haven't. Not only policy rates, but what the market is charging for "loans" 2-3 years out.
For example, the lowest-strike BRK call for January 2026 has an implied interest rate of 7.60%.
If underlying inflation is and remains in the range indicated by those UIG figures, that's a real interest rate of 4.73% to 5.45%

A higher strike call (but not a super speculative one), for example strike $260, is showing an implied rate of 8.22%.
If underlying inflation is and remains in the range indicated by those UIG figures, that's a real interest rate of 5.35% to 6.07%.

Since I only count on a share of Berkshire rising in value at a real 7%/year on average (though I hope for more), those real interest rates don't look like a great deal, especially as we're likely to see a couple of years of below-trend growth in observable value.
You might end up borrowing at a real 5.5% to see a value increase of a real 6.0%. Not great math.

I have made a lot of money in the last decade with the leverage offered by options, but we always knew the party might come to an end if the interest rates become too substantial.
This might be the moment. Or nearly so.

Jim