Subject: Re: Bought to close
I happened to come across a research by Goldman recently, about various “option enhanced” strategies. Essentially, selling calls will lower your portfolio volatility AND returns.

Though I don't argue with their research, bear in mind that they are presumably not trying to take into account what the underlying asset is actually worth. They are presumably testing the strategy of writing calls all the time, through thick and thin.

Presumably writing calls on things that are temporarily highly valued is on average a profitable strategy, just as writing calls against an asset which is temporarily undervalued is on average a losing strategy.

As for the recent relatively high valuation multiples for Berkshire, I think the calls I have written (and those of others) may have been a rational choice even if they are not profitable at the moment, including those written right at the money. That's because I think that statistically the odds favour the stock price being slightly lower, not higher, than current levels later in the year. The fat lady has not yet sung.

If observable value per share rises at the usual rate in the next year, and inflation is maybe ~1%/quarter, and valuation multiples recede back to their ~10 year averages, then today's nominal stock price is maybe about what you'd expect first quarter next year. We have been pre-paid for this year's value growth : )

All that being said, a statistical strategy can have a positive expected outcome but still fail! The price is higher now than seemed probable a few months ago, so the calls I've written are not in aggregate profitable at the moment, and it's possible that won't change. However, I did them with the understanding that they might go wrong, and I'd be pretty happy with the above-average net exit prices of the stock that gets called away, being much higher than the prevailing stock price at the time. There's always another "buying opportunity" bus coming along.

Jim