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- Manlobbi
Halls of Shrewd'm / US Policy❤
No. of Recommendations: 17
Well, kind of.
I'm leaving almost all (well over 98%) of my BRK untouched, as always.
But as I outlined here (
https://www.shrewdm.com/MB?pid=501811538 ) a few weeks ago, I have a smallish orphan IRA from way back in the day that is a no-tax-considerations tradable account that in no way represents $ I count on for my retirement. It's sat holding nothing but BRK.B for at least twenty years.
...and for reasons outlined in the linked post, last week I went ahead and traded this milk cow for some magic beans: 50:50 LLY:NVO. (Details here:
https://www.shrewdm.com/MB?pid=-2&previousPostID=2... )
I'll report back in at least two/no more than five years as to how it worked.
One of two outcomes is possible:
1) I will have made more money than I would have otherwise,
or
2) I will have added further confirmation of Pascal's Other Law: “
All of humanity's problems stem from man's inability to sit quietly in a room alone.” --sutton
who probably should have just spent the time reading.
Lord knows there are enough books piled up around here.
No. of Recommendations: 0
I'd put my money on Pascal's Other Law.
No. of Recommendations: 0
50:50 LLY:NVO
Late to the party, I think.
No. of Recommendations: 3
I think really betting against Berkshire is the buying Puts for a full 8% of my net worth I did with brk/b at $446 or so. My biggest bet ever by far.
No. of Recommendations: 0
Interesting, Said. Good luck! Please share with us what strike & expiration?
No. of Recommendations: 4
Please share with us what strike & expiration?
Kind of "All of them":
12/20/2024 $410
12/20/2024 $415
01/17/2025 $400
01/17/2025 $420
01/17/2025 $430
03/21/2025 $400
03/21/2025 $410
06/20/2025 $390
06/20/2025 $400
01/16/2026 $400
Equal $ amounts for all expiration dates.
As buying for me is always much easier than selling I put my "sales plan" in a formula to avoid becoming too greedy and in hope of getting more and more to miss out on good selling opportunities before the wind turns again (happened before). The plan: Starting from $420 on downwards in $5 steps to sell around 10% of what's currently(!) invested in those puts (selling at $420, then at $415, at $410), using profit% + remaining duration as the criterions for selecting which ones to sell. That's the plan, all that's needed now is for Berkshire's price to nicely go down until at $370 the last puts will be sold --- at which point some calls will be bought, but especially lots of Berkshire shares. Easy, isn't it? We'll see how much this nice plan will be shattered by the hard hand of reality.
No. of Recommendations: 1
Instead of buying puts ... and have the time value losses associated with buying options, why not sell calls ... and have the time value gains accrue to you? If you really believe the stock will trend lower toward 370 over the next 18 months, then those calls would slowly lose value, and mostly end up at zero. Now, if you think the stock will trend lower toward 370 and continue substantially below 370, then the puts could end up being worth far more.
Plus, of course, if you sell options, you get the money in hand and it can earn interest for the duration. When you buy options, the money leaves your account and earns interest for the person who sold you the option.
No. of Recommendations: 0
Instead of buying puts ... and have the time value losses associated with buying options, why not sell calls ... and have the time value gains accrue to you?
My account allows me only to sell covered calls --- by purpose. I will never ever have a margin account.
Betting? Yes.
Even Betting big? Yes.
Betting the Bank? Never.
Btw: I do not think Berkshire will go down to $370. May be, may be not. But the plan is to have sold all puts latest IF that happens instead of greedily waiting for more.
No. of Recommendations: 3
I'm trying to understand your reasoning here, and I have a few questions.
I will never ever have a margin account.
Having a margin account versus having a cash account doesn't mean that you are required to actually USE the margin facility. For example, I have an account at one of the largest brokers for over 40 years, and it is a margin account, and I think I only used margin once (for a very small amount for 3 days while waiting for some securities to be delivered, DTC didn't exist yet so things were much slower) a few decades ago.
Betting? Yes.
Even Betting big? Yes.
Betting the Bank? Never.
Are you conflating having a margin account with "betting the bank"? Because that's not the case, even for people who use margin periodically it's not the case. Now, overuse of margin and stretching yourself to the limits is "betting the bank" in many cases.
No. of Recommendations: 5
Not having a margin account and having the lowest option trading level is protecting me from doing stupid things.
No. of Recommendations: 4
Please correct me if I'm wrong on this. My understanding is that if you have a margin account the securities firm can lend out any of positions regardless if you have a margin loan or not. If the securities firm went under you might also be an unsecured creditor. ?
No. of Recommendations: 5
Not having a margin account and having the lowest option trading level is protecting me from doing stupid things.
I dunno, I've done stupid things with a margin account and without a margin account, and I've done stupid things with options and without options. It only protects from a small subset of stupid things.
No. of Recommendations: 5
My understanding is that if you have a margin account the securities firm can lend out any of positions regardless if you have a margin loan or not.Only if you give consent! I sometimes give consent if the fee (interest) they are willing to share with me is juicy enough. I've received between 1.25% and over 75%, accrued daily and paid monthly, on various shares that I've allowed to be loaned out (to people shorting them). 75% interest is really quite rare and only happens under special circumstances (an upcoming event or a short squeeze), usually the typical rate is under 5%. The only other issue is that sometimes when dividends are distributed, they will not be considered to be "qualified" (because they were paid to you by the person who shorted it instead of by the company) so will be taxed at the higher ordinary income tax rate. But if I'm collecting an EXTRA 5% interest over and above the dividend, I don't mind paying a higher tax rate on a 2% or 3% dividend!
Here's a blurb from Schwab about it -
https://www.schwab.com/learn/story/earning-extra-i...If the securities firm went under you might also be an unsecured creditor. ?Most of the larger brokers will put up cash collateral against your shares so in the unlikely event that they go belly up, your money is there (not as an unsecured creditor). The reason they are willing to put up a cash collateral is because lending shares to people sho short them is VERY profitable, and they have the cash sitting there anyway, and it earns them interest for the duration.
No. of Recommendations: 9
"My understanding is that if you have a margin account the securities firm can lend out any of positions regardless if you have a margin loan or not."
Only if you give consent!
Nope. The original quoted part is right.
A quick google search comes up with this:
"Your broker also cannot lend out the securities you hold in a cash account without your permission. In a margin account, your broker may lend your shares to short sellers or hedge funds without notifying you."
Read the margin agreement of your broker. Yes, I know, nobody ever reads them.
Here is what is in Etrade's:
"You understand and agree that all Collateral may be pledged and repledged and hypothecated and rehypothecated or otherwise used by Morgan Stanley."
...
"In the event that Morgan Stanley pledges, repledges, hypothecates, or rehypothecates any Collateral, you understand and agree that Morgan Stanley may receive and retain certain benefits to which you will not be entitled. "
What you are talking about is "Fully Paid Lending." That's when you have a non-margin account (including an IRA). The broker will only do that when there are no positions in margin accounts that they can lend out, but somebody still wants to short it. Obviously the brokers will tap margin accounts first, since they get to keep ALL the money. Etrade gives you 1/2 the money they get for lending the shares. Fidelity gives you whatever they want to.
I had an IRA in the FPL program, but stopped it after a while, since the money I earned was trivial.
No. of Recommendations: 2
Mark, Oscar and Rayvt are correct. There once (2-4 years ago?) was a lengthy discussion here about brokerage risks.
Results:
a) With a margin account your positions are at the named risk if your broker goes under.
b) Even without that it's not 100% sure that there is no risk. That additionally requires the shares to be registered in your name (which was Munger's point which initiated the discussion).
If wrong the people that participated in that discussion please might correct me.
No. of Recommendations: 1
"You understand and agree that all Collateral may be pledged and repledged and hypothecated and rehypothecated or otherwise used by Morgan Stanley."
1. If you signed an agreement with your broker that says they can loan out your shares, then YOU HAVE GIVEN CONSENT! At some brokers, you can remove that consent (but some of them don't make it particularly easy).
2. There are a few small changes when they loan out your shares, most notably dividends are not qualified anymore (and have an associated higher tax rate), and you can't vote those shares (because someone else owns them at the moment). If you use a broker that does this to you without informing you, well, I'd suggest you switch brokers. In all my 40+ years of investing, I've never once experienced a dividend that became non-qualified due to being loaned out and I never once experienced owning a stock that I couldn't vote my shares due to it being loaned out. This is at 4 large brokers over the years. Maybe they only lend out non-dividend shares and maybe they cancel the loan (and have the shares returned to them) during the annual voting period?
3. At this point I only have two of my securities loaned out, one earning a relatively high rate, and one earning a low rate. But even the low rate one is still adding some income to the normal dividend. If the broker would be lending them out anyway, I may as well share some of that interest! One of them in a margin account, the other in a tax-deferred account.
