Subject: Re: Check Capital Management BRK Options Stragegies
OK. So they sold covered calls and got lucky because stocks in general were doing well, BRK in particular. Big deal.

It is perhaps worth mentioning that adding call-writing to a long stock position is bearish, not bullish. A covered-call writing strategy should normally expected to outperform the equivalent long-only strategy in flattish and falling markets, but lag in strong bull markets. If it added value while "stocks in general were doing well", that's reasonably impressive. Judicious timing and selection of trades, for example.


Sorry, not seeing why any of this matters unless it is repeatable, which it is not.

Perhaps surprisingly, buy-write strategies outperform long-only most decades, based on academic studies, and analysis from CBOE. Even before accounting for any perceived advantage from lower short term volatility. But, as with running any insurance business, the size of the premium matters. There is a price at which you'll get an underwriting profit on average, and a price at which you won't. The secret is simply to avoid jumping into the insurance business in a soft market (aka low option premiums). Do something else at those times.

As a crude rule of thumb, if the one year volatility index is over 22, it's likely there is a useful opportunity for writing options. At 17, look elsewhere.

Jim