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For those aggressive folk with a long term bullish BRK position some of which is held via long dated deep-in-the-money calls, they have to be rolled from time to time. i.e., sell the current ones before they expire (or are assigned), buy longer dated ones.

The ideal time to do this is when:
* The stock price is fairly high
* The market is relatively calm
* Interest rates are relatively low

I just thought I'd mention that the current situation is quite close to that ideal, if you have any options for which you'd like a longer date. The implied interest rate for the implied loan built into these options has fallen a lot based on market expectations of upcoming interest rate cuts, so taking into account the likely trades within current bid/ask spreads there are several contracts with rates in the 4.8%-5.0% range, which is not bad. e.g., January 2027 with strikes $300-340, January 2028 with strike $280. Actual fill prices will be different, of course, but those current examples give an idea. We rarely saw better than that even when policy rates were much lower.

Since the stock price is reasonably high at the moment, there is a good chance that one can switch from an older lower strike to a newer higher strike, freeing up cash / taking profits.

Note, this is not an ideal time to buy new calls, just a good time to roll old ones to new ones without increasing the position size.

Jim

Good time to Thank You Jim for your teaching & suggestion wrt DITM Call LEAPS purchased in 6/22. I had the BRKB shares delivered upon their expiry. We are now selling some of those shares off as we are now in our drawdown phase (basis was $266.50). Thank you Jim & others that facilitated such a decision!

Note, this is not an ideal time to buy new calls, just a good time to roll old ones to new ones without increasing the position size.

If this is not a good time to buy, then why roll? Why not sell the existing positions and wait for a fat pitch?

Elan

If this is not a good time to buy, then why roll? Why not sell the existing positions and wait for a fat pitch?

Two different investment philosophies. One view presupposes you have an idea about what valuation levels or prices might do in a reasonable time frame. Prices seem relatively high so a better entry might come along--I've been imagining one for a while--but then again it might not.

Conversely, simply rolling calls over and over is agnostic about upcoming prices, figuring merely that the value growth rate over time will be higher than the implied interest rate in the leverage of the currently available calls.

I've followed both approaches and both work, but simply rolling the calls is closer to the "just hold the damned stock" approach. Not close, but closer.

Whichever approach one uses, sometimes you have to roll. I just wanted to point out that this seems like a better than average moment to do so. It's very expensive during a panic when prices are low.

Jim

<<If this is not a good time to buy, then why roll? Why not sell the existing positions and wait for a fat pitch?>>

It's about judgement and nothing is 100% certain, even Buffett still made mistakes in the recent past. So the better approach is not to take extreme positions, but weight one way or another.

For those aggressive folk...

Let's say a (certifiable?) aggressive investor (like myself) was unfamiliar with options. Is there a particular book or other source that would help him get started?

Baltassar

If this is not a good time to buy, then why roll? Why not sell the existing positions and wait for a fat pitch?

Not speaking for Jim, but it seems like many option holders think that if an option is at a loss, you can "repair" it by rolling it. Google "options stock repair strategy".

They feel that it is extending the (losing) trade, instead of what it actually is -- closing the old option and opening a new option.


Whenever I have rolled an option at my broker you enter the trade as a roll as a limit order with a net debit/credit. Either rolling a winning option or a losing option.
Then when you look at the filled transaction it is two transactions, one is a sell and one is a buy.

It's the same category of thinking that says a stock is not a loss as long as you don't sell it.
Which is the way my long-ago investment club rode a stock all the way down to 7/32 ($0.219) before we finally sold it.

But then again, I have not done 30,000 option trades, so what do I know.

It's about judgement and nothing is 100% certain, even Buffett still made mistakes in the recent past.

The correctness of a decision is not determined by the outcome. It is determined according to what information you know at the time of making the decision.
If you make a good decision, but the outcome is bad, it wasn't a mistake.


For these DITM LEAP options I primarily look at the implied interest rate of the call, whether buying a new option or rolling a current holding.

I've had some BRK-B calls in the 3% range, while some have been up to 5%.

It has been a loooong time since the P/B has been low enough to buy.

Note, this is not an ideal time to buy new calls, just a good time to roll old ones to new ones without increasing the position size.

Thanks for anticipating my question. I'll stay put with my Berkshire + Cash + Google and a bit of leftover oxy

I'll stay put with my Berkshire + Cash + Google and a bit of leftover oxy

I'm assuming you mean Occidental Petroleum Corp? :)

--sutton
(probably spent too much time in the medical field)

I'll stay put with my Berkshire + Cash + Google and a bit of leftover oxy

***

I'm assuming you mean Occidental Petroleum Corp? :)

--sutton
(probably spent too much time in the medical field)

Haha. The only oxy I'm familiar with is OXY 10, the pimple fighter from when I spent too much time in my awkward teenage years. 😆

many option holders think that if an option is at a loss, you can "repair" it by rolling it. Google "options stock repair strategy".
They feel that it is extending the (losing) trade, instead of what it actually is -- closing the old option and opening a new option.


Of course it's a separate trade. But it may also be a single investment.

The suggestion of here of rolling out (and maybe up) has nothing to do with "repair strategies". It's simply part of the mechanics of doing this trade, since you can't buy call options with expiry dates more than a couple of years in the future. If you want leveraged Berkshire as a long term hold mechanism, you have to roll every couple of years, just something for your "to do" list like pruning your roses or getting your brakes checked.

Even for someone wanting in the money calls purchased when Berkshire is cheap as a one time trade, planning on closing as soon as the price is higher, you can't really rely on any value based strategy working out in less than two years. Four years is *usually* enough, so you *usually* don't have to roll them more than once in this situation.

In both cases there is no firm expectation of, nor reliance on, the first "leg" of the trade (the first option in the time line) working out profitably prior to expiry. You always have to be prepared for a roll. Consequently nothing to repair.

Jim

Of course it's a separate trade. But it may also be a single investment.

Gotcha. It's a matter of terminology.

Even though I've been doing DITM LEAPS since 2017 I still don't have a 100% grasp on the strategy. 99.9% of options strategies are completely something else so my mind keeps slipping into the groove of other option types.
It's difficult to internalize a strategy that's only 0.1% of all strategies.

Thanks for putting me back on track.

The suggestion of here of rolling out (and maybe up) has nothing to do with "repair strategies". It's simply part of the mechanics of doing this trade, since you can't buy call options with expiry dates more than a couple of years in the future. If you want leveraged Berkshire as a long term hold mechanism, you have to roll every couple of years, just something for your "to do" list like pruning your roses or getting your brakes checked.



I just looked and the 13 BRK-B DITMs I've done averaged 4.25% implied interest rate.
From 2.40% to 6.88%. The last one closed on 1/2/2024, when the P/B got up to 1.55.
With BRK-B at 383.20. Sold it at 150, now is 238.

Last time I checked, on 3/2/2025, BRK was 513.83. Today it's 498.92.
The lowest rate was 6.06%, for the 1/16/2026 250 call. Breakeven: 526.45
P/B was too high so I didn't buy it.

I play options in easy to understand situations:

If I want to sell stocks at current price, I sold some call options to avoid paying tax in current year, or to get a fatter price, or just net the proceed for free.
If I want to buy stocks at current price, I sold some put options to get a lower price or just net the proceed for free.

I play options in easy to understand situations:
If I want to sell stocks at current price, I sold some call options to avoid paying tax in current year, or to get a fatter price, or just net the proceed for free.
If I want to buy stocks at current price, I sold some put options to get a lower price or just net the proceed for free.

No argument with those, but both of those strategies are fancier and probably harder to understand than the perpetual deep-in-the-money calls approach, which is basically just taking out an uncallable loan (a couple of years at a time) in order to be long some more shares.

For years I just kept rolling my calls, either rolling out, or rolling out-and-up. Every so often the stock price would be high and I could roll up to a higher strike for a very reasonable interest cost, throwing off a lot of money, which I happily spent.

This just meant I had the upside on more Berkshire shares than I would otherwise have had, at the cost of the implied interest rate. I would generally think of the alternatives as 100% of that position size in Berkshire shares, versus 50% in Berkshire shares and 50% in call options with 2:1 leverage. The latter gives you the upside on 1.5 times as many shares, at the cost of interest on the cost of that extra 50%. (don't forget that the implied interest cost is on only the *extra*, not the whole position). So if Berkshire rises in price on average at (say) 9%/year, and you're paying an implied interest rate of 6%/year, the "interest" is 6% on 1/3 of the shares controlled, or 2% on all of them, so you make on average 9-2= 7%/year on 1.5 times as many shares, 7*1.5= 10.5%/year on your cost basis. This can of course be pushed further with higher strike prices and/or less stock, but that example shows that how even a small amount of leverage makes a boring investment return into a quite good one.

Leverage, of course, being the main way smart people go broke. If you're going to do it, make sure the loan is uncallable and long term and cheap, and make sure the asset you buy has essentially no chance of falling in true value. If you follow those rules it's possible to make quite a lot of money without much in the way of obvious risks.

Jim

Jim says:
This can of course be pushed further with higher strike prices and/or less stock, but that example shows that how even a small amount of leverage makes a boring investment return into a quite good one.

At the moment I keep a high amount of cash in my investment account. One might or might not debate the wisdom of that, but I mention it because I think that if you do desire to keep cash in your portfolio, you are BETTER OFF not using DITM leverage for long term stock holdings.

This result holds as long as the cash in your account is earning a LOWER rate than the implied interest rate on your DITM leverage loan. I think that will effectively always be the case if you are looking at Cash held in bonds with expiry similar to the expiry of the DITM calls, but maybe this assumption is get-around-able?

I just checked the 1/21/2028 expiry $280 strike BRK options with BRK on 1/6/2026 trading at $499.02 and I calculate the implied loan as having a 5.21% APR. That is a pretty good and a pretty low APR, but it is higher than I get on my cash, which is right around 4%, possibly a little lower.

So that means, IF I do a DITM leverage on my BRK I am simultaneously (implicitly) borrowing at 5.21% while saving at 4%, which is a dead loss of 1.21% per year on the cash I have done that with. I would be 1.21% to the good if I simply got rid of my BRK leverage and held the shares, plus slightly less cash.

I am wondering
1) is there a way to get better than 5.2% on cash with a term of about 2 years, which is the term of the BRK call I looked at?
2) Is there some other reason/value in holding the cash in one pile while having the implicit 5.21% loan I am paying for with the DITM call?

At the moment I keep a high amount of cash in my investment account. One might or might not debate the wisdom of that, but I mention it because I think that if you do desire to keep cash in your portfolio, you are BETTER OFF not using DITM leverage for long term stock holdings.

I would say that this is two separate holdings.
Cash has one characteristic, stocks have another, bonds have another, options have another.
Think about the reasons why you keep a high amount of cash.

The DITM LEAPS are essentially buying some leveraged BRK. Leverage costs money but you do it when you expect the stock to go up handsomely, much more than the leverage costs you. The thing about buying calls is that you can't lose more than you invested.

These options you are expecting about 2X leverage. If BRK goes up 10% the call is expected to go up 20%. The (implied) interest rate it costs you is not a separate thing like a margin loan, it is built into the option price.
It's not 5.21% vs. 4%. It's a price that is higher by the equivalent of 5.21% interest.
It's like when people buy an ETF with a high E/R, which they expect the ETF performance will be outstanding and more than cover the E/R.

1) is there a way to get better than 5.2% on cash with a term of about 2 years, which is the term of the BRK call I looked at?
No, not really. Current actual interest rate is about 4%. Anything more than that has additional risk.
However:
a) There are 3 year MYGA's that pay ~5.5%. 2 year a bit less.
b) BAC & WFC preferreds yield about 6%.
c) JAAA yield is 5.5%

2) Is there some other reason/value in holding the cash in one pile while having the implicit 5.21% loan I am paying for with the DITM call?
Yes.
a) You hold cash for a different reason than you invest is a stock or option.
b) The "implicit loan" is not really a loan. It is a fee. An entrance fee that you expect to be more than covered by the gain of the investment.

Up until recently you paid a fee (commission) to buy and sell a stock. Nobody treated this as an implied interest rate, even though it could be done so just like you do it on DITM options.

Important note: At the current metrics this is NOT the time to buy DITM calls on BRK.

So that means, IF I do a DITM leverage on my BRK I am simultaneously (implicitly) borrowing at 5.21% while saving at 4%, which is a dead loss of 1.21% per year on the cash I have done that with. I would be 1.21% to the good if I simply got rid of my BRK leverage and held the shares, plus slightly less cash.


This is all true. No doubt.

But for that cost, you do get some benefit.

The only reason to do that losing habit (which I have done frequently) is that the cash has some optionality. When some really fat pitch appears, you have the cash on hand to do something about it. Cash has a very high return in one way...if you count the things you can do if it's deployed at an opportune moment. Sometimes it's worth 1-2%/year over time just to have that ability when the moment comes.

Also, a very small potential side benefit: when the market crashes and your chosen stock crashes with it, call options don't crash nearly as much (in terms of dollars per share controlled) as the stock price does. It's like the air column under an elevator with its cables cut: as the air below the car compresses, the fall rate of the car slows, with the lowest descent speed when the car gets down to just above the strike price. Sorry for the mangled metaphor, but the point is that in-the-money call options don't fall as much during a crash. (High in percentage terms, but much less in dollars-per-share terms). If nothing else, you can make a nice few spare bucks simply by switching from calls to stock with that spare cash during the moments of the crash.

More generally, holding calls all the time for a given position size means that you can do all kinds of things with the rest. Sometimes it might be cash, sometimes it might be an investment in some irresistible trade. Sometimes you might even want to buy some put options against something, who knows?

Jim

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