No. of Recommendations: 21
I am thinking of buying some BRK.B, by selling puts. Today BRK is selling for 402.66. May be sell monthly put? There could be two events for BRK price, that could be higher or lower. Its earnings and Fed. Can someone suggest some strategy?
Using options to react to news opportunistically is an extremely difficult game to play. I devoted a whole chapter to news in Manlobbi's Descent. There is, as a rule of thumb, excessive attention upon news because we are attracted to novelty and seek causation (even when there is none), and invent catalysts - so trying to guess the market is best avoided. There are many other participants trying to guess both the news, and the effect of news, and the reaction to the effect of the news, and so on, all in the same way, and this tends to not only neutralise the effect of the news but owing to temporary trades being reversed upon the news braking, often the trading is the diametric opposite to what you expect.
One the other hand, amongst the many hundreds of investors at Shrewd'm there are many, some having shared with me personally, to have made insane improvements to their returns with the use of options, opportunistically when the price is particularly low relative to book value, and then undoing this leverage when the price is no longer particularly inexpensive, such as now. This is part of the reason why mungofitch's - and other's - estimations of the price / value ratio are very treasured here.
This approach of leveraging an investment opportunity with above-average expected gain still requires the usual required (and extremely high degree of) investing patience; when you are betting on valuations to return to normal, you tend to have to wait in the vicinity of 2-9 years, which is beyond the patience of most investors. But over the long-term, adding leverage (either using options, or a non-callable - ie. mortgage - loan) to a safe investment trading whilst nears historic lows is perfectly sensible as far as I'm concerned.
- Manlobbi
