No. of Recommendations: 8
From your back of the envelope math (which I didn't check but assume is right), it doesn't look like an attractive deal, since you'd be selling at something in the vicinity of estimated future fair price. No reason to bother.
In general selling a call is a bearish thing to do, so it's probably something you'd want to do when the price is lofty at the moment, not (as today) dippy. I sold some $550 calls last year on May 2 when P/B was 1.79.
Instead, consider turning it around. Imagine a person with unallocated cash that wishes to get some more Berkshire shares at a good price.
Random example: Write a January 2025 $480 put for a premium of $27.50 (a bit less than yesterday's close price for that contract).
Outcome 1: The stock is assigned, probably shortly before expiry. You get a net entry price of $452.50. Wild guess of book per share at year end will be $353-367, so that entry is 1.23 to 1.28 times future book. That should work out well. You also probably get close to a year of interest on $450 in cash, about $14 at T-bill rates, dropping the entry P/B by about another .04
Outcome 2: You keep the cash. You earn 6.1% = 7.35%/year rate on the cash committed to the deal from the premium you collected, plus another 3.7%/year or so interest on the cash pile assuming one year T-bills. Making 11%/year on your cash this year isn't a bad prospect.
The goal when doing a deal like this is to pick the time frame and strike price that make the two outcomes equally attractive to you. Murphy insists that you won't get your preferred one.
Jim
