But to me, the risk is that I may have to pay $409 for them in June, when they are available for $300, so I am paying $109 per share more than I needed to pay.


$300 in June is possible, but a bit unlikely. If we assume trend book value increase continues then known Q1 bv may be $296 and Q2 should be over $300 as a guess by end of June. We have seen prices at 1x bv but it has been almost as rare as the 1.7x+ that we have seen recently.

I tend to think of it like this. I am quite happy to buy shares when the price is hovering around the median p/b or median p/iv ratio so i will tend to target my all in put sales around that mark based on expiration date. The june contracts you sold for all in at $409 seem to follow that logic as median price based on trend book should be in the $410-$420 range in the March to July timeframe next year.

So what if the price drops lower than that? Value is still increasing at a fairly constant clip as you said and it’s reasonable to think forward returns from purchases around median p/b will track the long term increase of bv and iv of 11-12% (maybe a small haircut for safety). Those feel like acceptable long run returns to me.

And if the price drops to $300 one can always try to juice the returns a bit with some DITM leaps. If you care to dabble in the dark arts and alleviate some of the buying too early fomo.

Or if it’s the long time horizon between now and June that has you worried, sell an earlier expiration contract like December or January. I say whatever allows you to sleep at night is the best course of action regardless of what everyone else is doing.

Jeff

Berkshire Hathaway FAQ

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