Subject: Re: Puts
I did think about rolling up and out. I’m still in the option learning phase & content to own stock only for now(BRK up >27% over last 12 months). I wrote some June ‘24 440 covered calls in 2/24 for $6.85/ contract & I’ll just those ride out. The risk of contractually releasing hundreds of Berkshire shares I honestly found more unsettling than anticipated, even if the premium received would have made it slightly profitable.

I think a key point of any option writing, whether calls or puts, is choosing your position in a "balanced" way. There are always two possible outcomes...either the option is exercised, or it expires. For any position that you open, you don't want to open it unless you are happy with both possible outcomes, preferably equally happy. That's because you will always end up with the outcome that looks worse at the moment you know which one it will be! (it may only look worse for a day, but sure as shootin', that's the one you'll get).

Of course perhaps new information comes in and you change your mind about how relatively acceptable the two outcomes are. You might want to change your mind, and perhaps change your position at that point. There's nothing wrong with that, and it's as true of an option position as it is of a stock position. Things change. But if the news hasn't surprised, then you should be happy with either outcome.

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For those of us who wrote some covered calls lately, I believe the important thing is to track it and think about it in a way that matches your investment thesis. Only that way can you keep track of whether your investments are working out for you. I think of switching from a long stock position to a covered call position (i.e., writing a call backed up by a pre-existing long position), as merely a conditional way of selling some of the stock I own. It is in effect a modification to the original investment, and investment thesis, of the original stock purchase itself, not a new stand-alone position: I decided there was a target price that I'd be willing to sell soon. It isn't a new investment, just one way of closing an existing one.

I bring this up to get back to a comment earlier in the thread: a poster took a loss on an option position. Ignore for a moment the fact that the loss was realized--just consider the loss itself that day, realized or not. The thing to remember is, it wasn't a short option position, it was a covered call. That is, a single investment consisting of two legs together. (I presume pretty much nobody here would be writing naked calls against Berkshire without owning any stock...not really the best stock to be bearish on). Thus it wasn't a loss on an option position, it was a gain on the covered call, because during the interval in question the stock half of the CC position went up in price more than the option half of the CC position went down. Whether the option was closed that day or not, the covered call position was more profitable than it was the day it started (the day the CC position was created from a long stock position). Sure, one would have been better off sticking with a plain stock position rather than a covered call position in this interval, but them's the breaks--there were offsetting advantages to be considered, but not all investment decisions work out optimally. A key point is that both alternatives (CC or stock) were profitable in that interval, just one more so than the other.

This is a general rule of all hedged positions and portfolios. It's not really useful to evaluate one side or the other in isolation. One of them will ALWAYS be a loser, almost by definition. Normally there is not even any intent that both sides should be winners. The investment is created as a *combination* with the range of outcomes of the combination in mind, so it's the value of the portfolio--the whole combination--that matters. It doesn't matter whether A gained and B lost, or vice versa, what matters is whether A+B gained, since that's the investment that was created.

Hedging is quite a different situation from having a portfolio which just happens to include wholly independent long and short positions which are all intended to be profitable individually. In that case every position has its own investment thesis, so each one should have its profit and loss and thesis success evaluated on its own.

Jim