Is this not a time to consider selling cash backed deep in the money calls?

I've been looking at them but have not bought any yet. As Jim's graph points out, the stock is still trading slightly above long term trend multiple. If Q4 book value comes in at $500,000 then at the current $474 quote it's trading at about 1.42x or slightly above long term median of 1.4x. A purchase here may or may not benefit from valuation expansion at the time of sale.

I keep a matrix of possible outcomes over 4 years with P/B from 1.0x to 1.55x and 4yr bv growth rates of 0% to 16% per yesr. I then calculate the possible return of the option across those potential inputs. A random example would be Jan28 calls with 2x leverage which would currently be the 260s for a $239 premium maybe. The cost to borrow the leverage on those is about 5.4% per year and my matrix would assume a similar cost to borrow for a roll out another two years. If bv were to grow at 10%, p/b pulled back to 1.4x, and you exit the position near final expiration then you may expect a 12-13% cagr. If you get lucky and can exit at closer to 1.5x then maybe a 16% cagr.

My plan is to be a little patient . More than likely the market will make a fool of me and price goes straight up from here.

Jeff

Berkshire Hathaway FAQ

---

Contact Shrewd'm
Contact the developer of these message boards.