Be nice to people. This changes the whole environment.
- Manlobbi
Stocks A to Z / Stocks B / Berkshire Hathaway (BRK.A)
No. of Recommendations: 4
I'd like to sell some Berkshire shares for $600 between now (2026) and EOY 2028.
I noticed when the share price is ~$500 (currently $490) the December 15 2028 $500 calls are ~$100. So, you're committing to sell shares on that date for $600. In the meantime, you collect $10,000 per contract, which would earn some interest between now and then.
Here's a back-of-the-napkin share price projection (thanks to Jim):
Berkshire 3Q 2025 book value was $323.62.
Project 3Q 2028 book value to be $396.45 based on 7% growth (323.62 x 1.07^3).
Apply a P/B of 1.43 to get a share price of $566.92 (396.45 x 1.43).
Apply an inflation rate of 2.75% to get a nominal price of $614.99 (566.92 x 1.0275^3).
So, when Berkshire releases 3Q 2028 results in November 2028, about a month before the calls expire, the share price might be $615. That's in the ballpark to selling December 15 2028 $500 calls for $100.
However, I probably won't sell these calls because it just feels too far out.
No. of Recommendations: 8
From your back of the envelope math (which I didn't check but assume is right), it doesn't look like an attractive deal, since you'd be selling at something in the vicinity of estimated future fair price. No reason to bother.
In general selling a call is a bearish thing to do, so it's probably something you'd want to do when the price is lofty at the moment, not (as today) dippy. I sold some $550 calls last year on May 2 when P/B was 1.79.
Instead, consider turning it around. Imagine a person with unallocated cash that wishes to get some more Berkshire shares at a good price.
Random example: Write a January 2025 $480 put for a premium of $27.50 (a bit less than yesterday's close price for that contract).
Outcome 1: The stock is assigned, probably shortly before expiry. You get a net entry price of $452.50. Wild guess of book per share at year end will be $353-367, so that entry is 1.23 to 1.28 times future book. That should work out well. You also probably get close to a year of interest on $450 in cash, about $14 at T-bill rates, dropping the entry P/B by about another .04
Outcome 2: You keep the cash. You earn 6.1% = 7.35%/year rate on the cash committed to the deal from the premium you collected, plus another 3.7%/year or so interest on the cash pile assuming one year T-bills. Making 11%/year on your cash this year isn't a bad prospect.
The goal when doing a deal like this is to pick the time frame and strike price that make the two outcomes equally attractive to you. Murphy insists that you won't get your preferred one.
Jim
No. of Recommendations: 1
Write a January 2025 $480 put for a premium of $27.50
Outcome 1: The stock is assigned, probably shortly before expiry. You get a net entry price of $452.50......
Outcome 2: You keep the cash......Making 11%/year on your cash this year isn't a bad prospect.
May I, who just followed Jimīs suggestion by writing Janī27 $490 puts for $34.9 (resulting in case 1 a CAGR of 13% on the cash, in case 2 in buying BRK for effectively $455.1) humbly add a 3rd option?
As is the case now since months BRK goes sideways, up and down in the range $470-$510 or whatever. Mid year you change your mind because you see other opportunities to invest your cash in you find even better than buying BRK for $455.1. Then you buy those puts back for e.g. 1/2 price (lower time value then) and keep the other 1/2 of the premium + the interest until then. Done. Also not too shabby.
Thank you, Jim!
No. of Recommendations: 0
As is the case now since months BRK goes sideways, up and down in the range $470-$510 or whatever. Mid year you change your mind because you see other opportunities to invest your cash in you find even better than buying BRK for $455.1. Then you buy those puts back for e.g. 1/2 price (lower time value then) and keep the other 1/2 of the premium + the interest until then. Done. Also not too shabby.
I've used this logic before and sometimes it works. But sometimes it doesn't ... because usually when those "other opportunities" suddenly arise, it's because of a brief downdraft. And most often, that brief downdraft will also affect Berkshire, so if it drops to 470 or 465 during that brief moment, suddenly those 490 strike options can't be bought back at 1/2 the price, but may instead cost way more than that, perhaps even more than the original selling (to open) price.
No. of Recommendations: 1
I've used this logic before and sometimes it works
It just did work. On 26./27.March I sold Jan15ī$27 $490 puts for $34.90 and $480īs for $35.85. I just bought them back for 18% respectively 31% less. Not intended but as I said "not too shabby".
(The intention was to accept both alternative outcomes: Either simply income from the premium or buying Berkshire shares for an acceptable price. But the opportunity presented today was just too good not to use it to instead choose that 3rd option.)
No. of Recommendations: 0
It just did work. On 26./27.March I sold Jan15ī$27 $490 puts for $34.90 and $480īs for $35.85. I just bought them back for 18% respectively 31% less. Not intended but as I said "not too shabby".
Not at all shabby!
Now that buybacks are back on the table, we discussed (here and/or on MF) the idea of a "floor" on the price of the stock. I bought into that thesis and I entered into a number of bull call spreads, the nearest of which is a May 15th, 2026 430/460 BCS with a maximum potential return of 21%. But of course I will dispose of it at a slightly lower return given the opportunity (i.e. if my standing order to dispose of it executes between now and May 15th).
