Subject: Re: What covered calls you got?
Currently I have various expiration dates September through January.

I generally go a bit shorter than that, more like 3-4 months. If the stock keeps rising, you can roll up and out which raises the breakeven but doesn't consume cash. However you do end up with a longer average time to expiry, which is my current situation.

Bear in mind if you're rolling them out to a later date that you NEED a higher breakeven to have the same odds of it being a good trade: remember that the value of a B share rises about (say) $3 a month on trend, give or take. A price that represented a good selling price a year ago might not constitute a good selling price a year from now!

The main thing to remember with trades like this: when you start, there are two possible outcomes, and you don't know which one you'll get. Either you get some cash, or you sell some stock at what appears to be a more-than-fair price. Be sure you're happy with both outcomes before you do it, and have no regrets. And when you enter this type of position, try to select a position that makes you *equally* happy with both outcomes. Don't have a favourite child.


I trust my valuation quite a bit, with error bars of course, but there is one interesting furrow in my brow at the moment.
In this post https://www.shrewdm.com/MB?pid...
... I mention that "Since we know the level of the line at each date in the past, and we know the level of the price at each date in the past, we know the average ratio between the two. Looking at the average ratio since 2005 and applying it to today's level of that line, the price today "should be" $370.22 per B share in today's dollars. Thus, today's price of $441.26 is about 19% above what you would expect at the usual multiple since then. "
In short, current "normal" should be about $370.

However, we also know that Mr Buffett was doing buybacks at around $405 per B share equivalent a while back. That's quite a bit higher than the $370 "expected" price, not an obvious discount level. Price to book ratios give a similar anomaly, as he is buying at considerably higher multiples than he has before. Presumably he thinks they're worth $405 or more with some confidence. I'm pondering possible explanations---one more optimistic one is that he is expecting profit margins to improve back towards their old better levels in some of the divisions not doing so well lately. The stand-out here is BHE. If they were running at prior normal net margins, and you were to slap a modest multiple on the net earnings difference, that alone would be good for an additional $10 per B share in observable value.

Jim