No. of Recommendations: 8
An expensive lesson I hopefully learned. May others profit from it:
I think it was Bluehorseshoe who said when he writes covered BRK calls he only writes them for a strike price at least 20% above current price, as he always thinks a sudden 10% or more jump up to be possible with Berkshire.
On 29.Jan 2024 I wrote 01/17/2025 $430 covered calls = 10% above the then $390 of a BRK-B share. I thought to be on the safe side as I thought a 10% jump possible too --- but couldn't imagine Berkshire wouldn't stay at such a high (relative to it's own price/book history) valuation for a full year. As we all know, it did not only stay there but was for a good part of last year even another 10% higher --- apart from a few very short-lived drops which were too short for me to action on them by buying the covered calls back.
A few days ago and especially today, around 1h ago, with only one more week remaining before having to say "Goodbye" to those shares (a full 1/3 of all my Berkshire shares) I used another opportunity to buy those calls back.
Outcome: 1 year ago I received a premium of $8.15. The average price paid to buy those calls back was around $19. So I had to give back the premium received and paid another 130% of that as penalty for stupidity or at least greed.
(Btw right now, just 1h later, they cost only $13.5 and it would be FAR cheaper to buy them back; the usual thing; in hindsight.......).
Greed, because anything less than the 2% I received ($8.15 premium when BRK-B was at $390) was too meagre for my taste. Therefore I didn't do the reasonable thing if one DEFINITELY(!) wants to keep his shares: To (as Bluehorseshoe does) sell covered calls only with strike 20% or more above the current stock price.
Lesson: If the premium for such a high strike (probably just $1-3, far below 1%) is too meagre one should NOT look at premiums for lower strikes --- and eventually give in to the temptation to sell those calls instead --- but should completely stay away from selling covered calls if it's important to keep one's shares (e.g. because they are favorably treated tax wise (which is the case here)).
