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I'm running about 20% in cash, earning 3.7%. I've had some of that in bonds before, but when they expired I got too lazy to reinstate them, and the interest rates weren't much better.

I'd like to slowly roll that back into Berkshire stock. At 1.6 times book value, it's not "on sale" as it were, but I don't feel it's overvalued either. One of my imagined firesale opportunities (a stock retreat due to the passing of Buffett) seems very unlikely to occur now that he has relinquished the reins to Greg Abel.

Are there any options strategies I could employ to get an edge on a buy-in price?

Is your account approved to sell cash secured puts?

Is your account approved to sell cash secured puts?

Yes, I'm approved for cash secured puts and covered calls. I'm subject to the no-margin rule, so no naked calls/puts or short selling stock.

" Yes, I'm approved for cash secured puts and covered calls."

Keep in mind brkb put premiums are small and not liquid but if you wait until the common sells off pick a month, maybe March 20 2026, pick a strike, the 475?, and sell a few at a time.

Good luck.

Selling puts is very similar to covered calls, even though they may feel different psychologically. The put premiums are smaller than the call premiums now, but puts come out very similar to covered calls after you figure the interest on the cash.

I've been selling puts with strike prices of 1.4 times BRKB's book value for what seems like forever now, with a range of expirations, and they keep expiring worthless. But the premiums added to the 3.6% interest on the cash is pretty good, while waiting for BRK to come down again.

As Charlie says, be very careful if you use leverage, it's how smart people go broke. :-)

Selling puts is very similar to covered calls, even though they may feel different psychologically.

Hmm, people always say that, armchair theorists, but I tend to disagree. The differences are huge in my view, having done rather a lot of both. The theory of equivalence, among other things, assumes you can borrow without limit and without margin calls at the risk free rate, and can earn it on your cash balances, and don't care about your cash balance, positive or negative. There are several other built in assumptions and small differences, but that alone should dispel the notion of true equivalence.

For the OP question, the most logical solution is to write cash backed puts at a strike price that, in combination with the currently available premium, would get an entry price at a valuation level you'd like. Do it repeatedly until the stock is assigned, collecting a bit of premium until then.

For example, imagine you think 1.4 times book is a reasonable entry price, being about the average on that metric over the last 20 years. Look for a strike price around or a bit above that target entry price, so the premium gets you that entry or better. Given that multiples are a bit higher than that at the moment it will likely expire worthless, so you simply do it again until it's exercised, and voila! you have your stock at a good entry valuation level. And you've likely made a pretty reasonable return in the mean time, as your cash is earning interest plus serving to let you earn a return on the time erosion.

The main observation here is that this works particularly well if you do it during a little selloff. You get more rate of return, or better entry valuation multiple, or both. Buy on dips works no matter how you're doing your "buy".

A more subtle observation is that if you aren't really trying to maximize the income, you can get a better entry valuation level within reach by going for longer expiration dates. A stock price that would seem cheap right now might be a normal expectation a year from now, as value generally rises over time.

As a numerical example (NOT a recommendation), maybe 2026-Q3 book, announced around the middle of Q4, might be around $357 per B share assuming trend growth of around (nominal) 2.5%/quarter. A notional 1.4 times book would mean a market price around $500 in mid/late Q4 would be unsurprising. So any assigned short put that got you an entry under $500 around year end would get you a "fair" entry. Conveniently, the stock price is around that neighbourhood now, so option premiums around that range are quite high. (time value is at its highest at stock price = strike, and time to expiry long). Random example, a September $510 put is currently bid around $27.50, which would get you an entry price of $482.50 which would be 1.35 times our guess of Q3 book. Not bad. If it isn't exercised, you make 5.7% on the $482.50 you commit to the project, in 249 days, or about 8.35%/year rate annualized linearly. That is added to whatever you're earning on the cash deposit. The strike is just a bit higher than where we think the stock price might be, so this line of reasoning suggests you might expect a slightly better than 50/50 chance of assignment.

A post from a year and a half ago discussing this general subject. Note that it's an old post, so mentions of "Q4" mean Q4 of 2024 : )
https://www.shrewdm.com/MB?pid=711586943

Jim

Also, the tax treatment of covered calls can be very different from short puts.

In the US, gains on short puts are treated as short-term capital gains, even if the short put positioin is held for more than a year.

With a covered call, the shares of stock can become long-term after one year, if the shares are not called away. This could be an advantage for the covered call.

Also, beware that tax treatment of covered calls where the short call is ITM (in the money, or below the current stock price) can be complicated.

And everything Jim said.

So, I suppose that short puts and covered calls are only very similar until you really start to think about it.

I've been selling puts with strike prices of 1.4 times BRKB's book value for what seems like forever now, with a range of expirations, and they keep expiring worthless. But the premiums added to the 3.6% interest on the cash is pretty good, while waiting for BRK to come down again.

I do something similar. I sell puts periodically and they've all expired worthless except for one time. The March 2023 305s (that I sold in early 2023) were exercised and assigned to me, so I bought those shares at 305 (net minus the put premium that I had received, of course). And I still hold them.

Meanwhile, we've been waiting a long time for "BRK to come down again"!

<<Selling puts is very similar to covered calls, even though they may feel different psychologically.>>

Hmm, people always say that, armchair theorists, but I tend to disagree. The differences are huge in my view, having done rather a lot of both. The theory of equivalence, among other things, assumes you can borrow without limit and without margin calls at the risk free rate, and can earn it on your cash balances, and don't care about your cash balance, positive or negative. There are several other built in assumptions and small differences, but that alone should dispel the notion of true equivalence.

I don't quite understand what you mean by this. Can you explain?

I look at it this way. Let's say you want to enter this type of trade notionally of 1000 BRKB shares. You have two choices:
1) Buy 1000 shares of BRKB for about $500,000 and then sell, say, 10 March covered calls at strike 520 for about $6,000 (about $6.00 each).
or
2) Sell 10 March cash covered puts at strike 480 for about $6,000 (about $6 each) and retain $480,000 in your cash account to cover the possible exercise and assignment of those puts. The puts will decay in value while the $480,000 will earn interest (about 3.55% per annum right now).

If you don't have the $500,000 and need to use margin for the trade, wouldn't the amount of margin be about the same in both cases? And in fact, wouldn't the first case would probably cost a bit more because while they (the brokers) are giving you 3.55% on cash retained in your account, they charge more like 7% for margin used from your account? But if you aren't using margin, then they are very close to being equivalent trades.

In general, I much prefer the put selling to the covered call trade. I learned that from Warren Buffett ... it's better, always better, for YOU to hold the "collateral" (the cash in this case) than for the other party to hold it. Sure this is a minor point in the way we trade options via brokers and through market makers, but still ... to me I prefer having that $480,000 sitting in MY account rather than the other way around.

Also, the tax treatment of covered calls can be very different from short puts.

I don't see it. If I sell a cash covered put, even one two years out, and it expires worthless, that entire gain is considered to be a short-term gain and taxed at ordinary income tax rates. But the same applies to a covered call, when the covered call expires worthless, even two years out, that gain is also considered to be a short term gain and is taxed at ordinary income tax rates. Now, if the short put is exercised and assigned to you, then that value is subtracted from your basis and isn't taxed as short term gains, but instead will become a capital gain, and if held for a year plus will become a long term capital gain taxed at those preferred rates. And the same applies to the covered call if it is exercised and assigned to you (if you held the stock for a year plus, it is a long term gain/loss when the stock is disposed of via delivery to the option exerciser). So they are treated similarly as far as taxes go.

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