When visiting Shrewd'm with a laptop, it can be pleasant to hold Command (or Ctrl with Windows) and '+' a few times. The site scales to allow any font size, and the larger font can be pleasant to read even for Shrewds with perfect sight! For luxury Shrewdness, you can combine that with setting the browser to full screen. You'll then find yourself Shrewding a lot.
- Manlobbi
Halls of Shrewd'm / US Policy
No. of Recommendations: 2
Even on this board of old friends we might agree that today, brkb is suffering from a lack of demand. IF you are short the Dec calls, do you buy them back on this weakness OR wait until DEC 19 and hope they are out of the money aka worthless?
505, over or below on Dec 19?
Thank you for your attention to this matter!
No. of Recommendations: 11
Personally I go by how trivial the cost is to close it.
If I've made almost all the maximum possible profit, meaning that the max remaining total return is small and the max remaining rate of return is small, I'd close it. Without any guess about what the stock price will do next.
Jim
No. of Recommendations: 0
" Personally I go by how trivial the cost is to close it.
If I've made almost all the maximum possible profit, meaning that the max remaining total return is small and the max remaining rate of return is small, I'd close it. Without any guess about what the stock price will do next.
Jim"
Thanks, but they are 8$$, not a trivial sum for an odd lotter like me. Will brkb break 513 by the 16th? I'm thinking not, unless they shock me an initiate a quarterly dividend.
No. of Recommendations: 7
Thanks, but they are 8$$, not a trivial sum...
Then another good choice to consider: buy them back, but then immediately sell new ones at a longer date. Depending on the strike you pick that will very likely be for a nice cash credit. That way there is pretty much no chance of exercise and you can kick the can down the road, giving your thesis time to work out, and also improving the breakeven on any exit if they are exercised.
The modest downside is that the ones you own, being short dated and very close to the money, are probably eroding in time value (to your benefit) very rapidly right now, which is what happens as the expiration approaches. So the more you want to avoid exercise, the more you have to give up a high rate of return for a short while. (Roughly speaking, expect the annualized rate of time value return to be proportional to the inverse of the square of the number of days remaining, other things being equal)
Lots of ways to handle it, depending on what else you own, how much you'd like to avoid their being exercised, and how long you are prepared to wait for it to work out.
Jim
No. of Recommendations: 1
Even on this board of old friends we might agree that today, brkb is suffering from a lack of demand. IF you are short the Dec calls, do you buy them back on this weakness OR wait until DEC 19 and hope they are out of the money aka worthless?
I don't think there is any "lack of demand". I think it is simple market meandering, that's something very common in December. People, especially traders, tend to slow down in December, and many take the second half of the month completely off. But for anyone who absolutely, positively, doesn't want their shares called away (for example to avoid 2025 tax consequences), then they should buy those calls back when they think it's an opportune time. Because like I said, December is sometimes weird, one day before expiry there could be an unexplained pop in the stock price, and suddenly "worthless" turns into "assigned".
I've been buying back some old put options that will expire worthless on Jan 16th or thereabouts. But not because I am worried that they will be assigned (there is a much less than 1% chance of that happening), but rather because I want the capital gain to be accrued in 2025 rather than in 2026. So I have standing orders to buy them at a penny, and every so often some of them execute. If they don't all close by the end of the year, I'll have to raise my bid to 2 cents.
No. of Recommendations: 0
" Lots of ways to handle it, depending on what else you own, how much you'd like to avoid their being exercised, and how long you are prepared to wait for it to work out.
Jim"
This is 25-year-old common in a taxable account, getting called isn't an option. There are 13 trading days left until Dec 19th. IF brkn rises more than 1 percent in that short time period, I'll wish I bought them back now. UNC or down is a favorite over up 1 percent plus so I haven't bought them back, yet. I sold them for 26.85 but that's not relevant to my thinking, 505 on the 19th would be nice.
No. of Recommendations: 2
This is 25-year-old common in a taxable account, getting called isn't an option...
Well, the response from a sensible advisor would be not to write calls against that position. : )
But, if you're going to do it anyway, the best way to avoid an option you've written from being exercised is to make sure that you only every have outstanding short positions in options with a fair bit of time value (at the bid price). No sensible person exercises an option which could get them a lot more money if they sold it instead, so such options almost never get exercised. So, same as previous suggestion: either just close the current position, or replace it by closing it and writing a longer dated one with more time value in it. This will probably raise both your current cash balance and breakeven exit price.
Jim
No. of Recommendations: 1
Jim,
Buffett hasn't bought back a share in 18 months, right? Buffett had no interest in brkb at 420ish correct? I figure Buffett has an even better understanding of brks IV than you or me. I thought that if brkb rallied 25 % above what he would pay for it with brks abundance of cash that BUFFETT would expedite his gifting so that the foundations could sell 10 billion into 520ish brkb, HENCE I sold those calls looking for easy money to pay a few years rent on my unfurnished Clayton double wide.
Here we are, brkb 506 with decisions to make as time decays the value of those calls daily, I HOPE!
As always, I appreciate you sharing the brilliance of your analysis, what flaw's do you see in my original thinking? I thought Buffett had a substantive reason to believe cash was better than brkb at 420, hence I sold those calls. Buffett was off by a bit with respect to what players would pay for brkb one year out, ok, Buffett was off by like a lot.
Appreciate your thoughts old bud.
No. of Recommendations: 3
This is 25-year-old common in a taxable account, getting called isn't an option...
Well, the response from a sensible advisor would be not to write calls against that position. : )
If you fear you are in danger of having your call exercised against a holding with a large gain, why can't you buy a new lot and tell your broker to deliver this new lot. If it doesn't get exercised sell it after the call expires.
After a couple of times, I decided that the risk and fear was not worth the small amount of money that I got from selling a call was not worth it.
No. of Recommendations: 7
I sold those calls looking for easy money... what flaw's do you see in my original thinking?
Berkshire's share price valuation level is certainly above the average of the last 10-15 years. So it's rational not to expect the price to be much higher after inflation in a year, maybe two. So maybe the valuation is vaguely near a cyclical high and writing calls can make a little extra money. That has been my thinking.
BUT...
an average can hide a lot of variation. A lower price is a bit more likely than higher, but either can happen, and either move could be very big. I don't know what the price will be in 3 months or a year, just a spread of rougy probabilities.
If I did know, I wouldn't have started writing calls against my position so long ago. I have been generally rolling them forward over and over, higher strikes and later dates each time, so my breakeven is much higher than it was.
Jim
No. of Recommendations: 8
After a couple of times, I decided that the risk and fear was not worth the small amount of money that I got from selling a call was not worth it.
A reasonable point of view.
FWIW, I've tried almost every fun option variation in the last couple of years (buying and writing calls, buying and writing puts, combos), and the one that has been most profitable has been writing cash-backed puts on price dips, even though the dips were not very deep. Partly because price dips tend to coincide with days of high option premiums.
Jim
No. of Recommendations: 2
This is 25-year-old common in a taxable account, getting called isn't an option.
Then you roll them! I have some Disney stock that I acquired early this year (April 21st) via a 90 put that I sold in March and was assigned at expiry. Then Disney stock went up, but I don't want to realize that capital gain this year. So each month since then, I've been rolling calls and receiving between $1 and $2 per share on each roll, plus a $0.50/share dividend in July (they don't do quarterly dividends anymore, seems like every 6 months instead). Come January, if I want to realize the capital gain, I might hold the call to expiry and allow it to be assigned to me. But, for now, just as an experiment, I don't see much downside to simply rolling indefinitely. Sure the stock can go down, and it will, because Disney in recent years has been remarkably cyclical. But so what? If I can keep earning $1 - $2 a month by rolling, why not continue doing it? So far, it's "yielded" $7.57 a share since April 21st, that's pretty good for an $88.50 investment over 9 months. In any case, it's just an experiment I am doing for fun.
No. of Recommendations: 2
" If you fear you are in danger of having your call exercised against a holding with a large gain, why can't you buy a new lot and tell your broker to deliver this new lot. If it doesn't get exercised sell it after the call expires.
After a couple of times, I decided that the risk and fear was not worth the small amount of money that I got from selling a call was not worth it."
IF brkb rallies big in the next 2`3 weeks I'll have to do that. That's the plan, Thanks.
No. of Recommendations: 1
" But so what? If I can keep earning $1 - $2 a month by rolling, why not continue doing it? So far, it's "yielded" $7.57 a share since April 21st, that's pretty good for an $88.50 investment over 9 months. In any case, it's just an experiment I am doing for fun."
The bad news is if you are an American in a taxable account trump thanks you for 20 % and even worse if you live in Cali Newsom takes another 12 %, what a CONtry!!
No. of Recommendations: 2
The bad news is if you are an American in a taxable account trump thanks you for 20 % and even worse if you live in Cali Newsom takes another 12 %, what a CONtry!!More than 20% in most cases! Federal tax is 24% for many of us here, and even 32% or 35% for some of us. And then there is an additional 3.8% medicare tax (Net Investment Income Tax) on any gains above a $250k income (or thereabouts). So, to determine the marginal rate, you usually have to add the 3.8%. So the marginal Federal rate for ordinary income, for some of us, is 35.8%. And all gains from short options are considered to be ordinary income. Long-term capital gains have a preferred rate of 15% or 20%, plus the 3.8% if applicable (and it's mostly applicable).
https://www.irs.gov/filing/federal-income-tax-rate...https://www.irs.gov/individuals/net-investment-inc...Then add to this any state taxes, and yes, California does indeed have relatively high income tax rates.
