Subject: Re: More cash-secured put arithmetic
Bid = 221.70
Ask = 224.70
Time Value = 477.24 - 478.30 = -1.06 at the bid

Though I have no comment on the advisability of the $700 puts, it's pretty certain you can do very much better than the bid if selling one of these far-from-the-money contracts.
You can generally trade wide-spread Berkshire options at 25% up the spread or better, and you can pretty much count on doing it at 30% of the way across the spread.

So, you could generally sell this contract at .25*221.70 + .75*224.70 = $223.95

So, to complete the math, assuming your numbers are right,

Stock = $477.24
700 - 223.95 = $476.05
Time Value = 477.24 - 476.05 = $1.19 of time premium at the likely trade price.
Not much, but positive.


Does it make sense to enter a stock position this way? Sure, if the numbers work. For example, much of Berkshire's initial position in BNSF, which was trading at around $80, was via $40 call options purchased for around $40. I'm not entirely sure of the reasoning. Perhaps the implied interest rate embedded in the options was attractive, or perhaps it avoided having to disclose building a position. Options do not appear on 13f forms.

Jim