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Given the recent price appreciation, I'm thinking this might be a good time to write covered calls on some of my BRK position.
If you agree - how far out and what price. Was thinking, for example, of June 550. But this might be too risky - though could always roll out
Happy to hear opposing views

" Given the recent price appreciation, I'm thinking this might be a good time to write covered calls on some of my BRK position."

With all due respect to our brkvill family, go back 6 months on this very board and read how all us experienced experts on brk, were convinced selling calls with brk at a fully priced 430ish, was a brilliant idea. Nuf said, off to the park. I suggest you go to, BEFORE, you make any trades.

The typical suggestion in write the next strike up (OTM) of the next month.

Every time, of the few times, I wrote a covered call on BRK-B I lost money. That free money just sitting there for me to pick up seemed to be connected to a grenade pin.

" That free money just sitting there for me to pick up seemed to be connected to a grenade pin."


LOVE IT!! Grand day all.

I sold some January 2026 $500 Cs for $44 and am using the proceeds to finally payoff the last of my student loans from about 15 years ago. The rate on the loan floats around (Fed Funds Rate +3.6%). From 2010-2023, with rates so low, it seemed only rational to buy stocks (especially Berkshire) rather than reducing my debt. But since 2023 the loan rates (and Berkshire) have gone up quite a bit.

So worst case, if the BRK.B shares get called away I'll have netted a 300% gain (~15% annualized) since I bought those particular shares a little less than 8 years ago for $180 each.

Heads I win big, tails I still did pretty darn well.

I generally go at the money or only a pinch above, about 3-4 months out. It gives you a whole lot of premium. This isn't the conventional wisdom.

Worried about the stock getting called away?

Two answers
(a) If so, you shouldn't be writing calls : )
(b) If you close the position before expiry, they won't be called. It's 99% certain that nobody will exercise a call if they can instead sell it for more because of time value remaining at the bid, which will remain true for quite some time. If the rally is continuing, you can close the position and roll it up and out to something with the same premium. This buys you more time for your price weakness theory to come true - if it ever does.

I've written a lot of Berkshire calls, and I don't recall one ever being exercised. Maybe I've forgotten, but normally I roll them if they're in the money, or let them expire worthless if not.

Jim

Happy to hear opposing views

I've never really understood selling covered calls. The only time I sell covered calls is when I want to sell the stock and I would like a slightly higher price for it. I did that once last year for a portion of one of my holdings. In this case, it really was more than once because it took two tries, two sales of calls, before the stock ended high enough for someone to exercise the option and buy my shares. The first time, the stock ended just shy of the strike price, so I kept that premium as the option expired worthless, but the second time, the stock was just barely high enough for the option to be exercised and the stock purchased from me.

I do however understand selling puts. I do that quite often. Basically, I choose a price at which I would be comfortable buying shares, and then sell the put that results in that price. So let's say you would be comfortable buying BRKB at 450 over the next few months. You could sell a Jun 455 put for about $5.50 (which happens to be about the same price as the Jun 550 call you might sell). If the stock dives sometime between now and June 20th, you can choose to exercise and buy shares at 455 (minus the 5.50 premium for a net price of 449.50 or so). Most of the time it doesn't make economic sense to do so until the last day, but it's your choice (for USA options). Worst comes to worst, if the stock doesn't drop, or doesn't drop enough, you keep the $5.50 premium and you can do it again a month or two or three later.

Now, why is this better than selling calls in my opinion? Well that's because over the long term, stocks almost always tend to go up, not down. So the odds are much more in your favor that the stock will go up, but you still get some benefit (buying cheaper shares) if it happens to go down over that short term period.

john, you could also sell puts. The put premium will pay off your student loans (less than the calls, but still not bad). If brk goes up, you pocket the put premiums. If brk goes down, you can sell the stocks immediately when you are put the the stocks. Your lost will be the difference between $500 (assuming you sold atm options) and future brk price. But your lost can be used to offset your huge unrealized capital gains of brk.

Comparing to selling calls, you may end up selling your brk but also a pretty big capital gains tax bill

First, sell options in a tax advantaged account. brk is not really a good stock to sell options on, because the IV is very low and therefore the premium is low. If you calculate the intrinsic value of BRK, and write the call at the price, who care if it is called away. Just write a put on it, when the stock is called away. You lose money when you buy back the call at a loss.

You could sell a Jun 455 put for about $5.50 (which happens to be about the same price as the Jun 550 call you might sell). If the stock dives sometime between now and June 20th, you can choose to exercise and buy shares at 455 (minus the 5.50 premium for a net price of 449.50 or so).

By selling the put you have chosen to pay no less than 449.50 no matter how deep the dive. And you will pay more if you buy back the put prior to expiration. I assume that's what you mean by "exercise", because as the put seller you don't exercise anything.

By selling the put you have chosen to pay no less than 449.50 no matter how deep the dive. And you will pay more if you buy back the put prior to expiration. I assume that's what you mean by "exercise", because as the put seller you don't exercise anything.

Of course, I misspoke! You can choose THE PRICE at which you are willing to buy stock (by choosing the put that results in that price) sometime in the future if the holder of the put exercises it, and you get assigned!

I generally go at the money or only a pinch above, about 3-4 months out. It gives you a whole lot of premium. This isn't the conventional wisdom.

Any covered calls looking juicy? For June you could write $530s for $13 premium for an exit of $543.

“At Berkshire we have a simple problem of estate planning. Just hold the goddamn stock.”

— Charlie Munger, 2023 Berkshire Hathaway Annual Meeting

“At Berkshire we have a simple problem of estate planning. Just hold the goddamn stock.”

Some of us live off our portfolios. We have no other income, and so holding just doesn't work, does it?

That's why Buffett detailed how to create a Berkshire dividend. So, if you're gonna be selling shares anyway, why not get an extra squeeze?

"We have no other income, and so holding just doesn't work, does it?"

my post was not a comment on your individual situation. I just love Charlie's irreverence


All the best as you sell down

“That's why Buffett detailed how to create a Berkshire dividend.”

We did just that- another small trim @$513.50.

Very interesting the degree BRK is outperforming S&P 500 YTD.

I generally go at the money or only a pinch above, about 3-4 months out. It gives you a whole lot of premium. This isn't the conventional wisdom.
...
Any covered calls looking juicy? For June you could write $530s for $13 premium for an exit of $543.

If one were to consider writing calls against one's long position (turning a long position into a covered call position), then yes, I think this would perhaps be an excellent day to consider it.

The choice of strike is pretty personal, and depends on a lot of things like how resistant you are to letting your calls get exercised. (which should be low, if you're thinking of writing calls at all). If I hadn't already in effect written calls against my entire long position, and given how fully valued the stock seems to be at the moment, personally I'd probably be looking at the $520s (bid $19.30), maybe even $515s (bid $21.80).

If those $515s were exercised, you'd be selling at 515+21.80= $536.80. At "normal" valuation multiples you'd expect the price to be in the $420s these days and maybe the $440s in June, give or take? So an exit of over $525 is not objectively a bad thing, if you're willing to sell at all.

The main advantage of higher strikes is that it just reduces the emotional sense of feeling foolish if the price rises a whole lot more: having done something that was perfectly rational, but with hindsight you'd have been better off in this universe had you not done it.

Jim

Some of us live off our portfolios. We have no other income, and so holding just doesn't work, does it?

That's why Buffett detailed how to create a Berkshire dividend. So, if you're gonna be selling shares anyway, why not get an extra squeeze?

Well, because there's additional risk involved. If you sell 10 BRKBs every month for income, you get ~10*500, or $5k a month. But if you sell 4 530 calls each month for $13 to get the $5k, once in a while, the stock will pop suddenly and you will get assigned on those calls and have to sell 400 shares all at once, possibly at a less attractive price. In a rising market (and by definition, when your out of the money calls get exercised, you are always in a rising market), you may end up with a pile of cash not working for you anymore. So sometimes it's a choice between selling a few BRKBs each month and being "forced" to sell a few hundred at an inopportune time. That's why.

And, yes, while you can buy back those calls, that means you have to leave a rather large pile of cash available to do so, AND also have to sell some BRKBs each month for income.

That isn't to say that it isn't a good idea to sometimes sell calls or puts. It is saying that one should be fully cognizant of what selling an option really means. I only sell options when I truly want the consequences of that contract (each option is a contract) either way. I sell puts on a regular basis on stocks that I already own and am willing to increase my position in them at that price (a few days ago I sold some puts in DIS and in AAPL at prices that are attractive to me).. And I periodically sell calls on stocks that I own at prices that I am willing to sell those stocks. Using puts and calls this way is mainly to get better prices at purchase or at sale, and sometimes those options expire worthless. In my internal tracking, I use the premium received as an effective "reduction of basis" or simply as part of my tracking overall IRR for that stock.

Jim, for an initial position in BRKB, is now a good time for an at the money covered call or an at the money put?

Jim, for an initial position in BRKB, is now a good time for an at the money covered call or an at the money put?

Well, the first step is to decide whether or not it's a good time to initiate an investment. My conclusion is that it isn't a good time for an initial position, in this case.

The second step is the decision of the best WAY to enter that position. Stocks, futures, options, calling your bookie, a combination of the above, whatever. But if the first step isn't opportune, it's hard to find something suitable in the second step. First "if", then "how".

My current thoughts are more along the lines of "let's sit on cash and wait for some good opportunity". That might be a good plan, it might not, but I'm cool with it.

Of course, writing puts at a strike price that represents a good entry certainly improves your return on your cash pile until you achieve your entry goal. The problem is that a good entry price is so far below the current market price that the returns are pretty low, considering that you've committed yourself to a specific (though wonderful) investment choice before knowing what the next market swoon will actually look like. Maybe Berkshire drops 15% and (say) Alphabet drops 80%...I love Berkshire, but I'd rather keep the flexibility to be an Alphabet buyer on that day. The current low return from low-strike Berkshire puts wouldn't be enough to compensate me for giving up the wonderful flexibility of cash. I did the put writing, profitably as it turns out, when the market price was $430ish and I thought a fair entry was $400ish, but not now with such a large gap.

Jim

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