No. of Recommendations: 4
So net exit price would be $468 and $475.
If not called you'd make $1,300 and $1,000 per contract.
Those are the prices on offer today and at expiration those are the only two outcomes you can expect. If you were to sell those calls today you have to be content with the outcome either way. If the price runs to $500 you can’t have regret that you missed out on the upside. If the price drops to $350 you can’t have regret that you didn’t sell the entire position. You know with absolute certainty what you are getting regardless of the price of the security at expiration so make sure you are happy with it.
Just as an aside, the %premiums for those contracts are quite a bit higher than when I sold them compared to the price of BRK/b today. Today is a rather unusual day for volatility compared to the recent past which is just an example of how it is good to be a seller of options during times of high volatility.
I don't know. There's so many different options (heh), how do you even go about picking 1) an expiration date and 2) strike price?
To poorly paraphrase Jim’s previous comments, you want to have confidence in your valuation of the underlying security and the likely trading range at time of expiration. With the additional understanding that the market can do absolutely anything it wants when it comes to prices and make your original assumptions/confidence feel ridiculous.
For example, I had calls sold against all of my tax free BRK holdings with expirations mainly in June with all in prices of $400 to $420 and had all of those called away. I’m currently content to wait for better prices and sell some puts at all in prices I would like to own the shares at.
So why did I sell the 455-465? I happen to only have shares remaining in my taxable accounts and I really don’t want to have to sell and pay a ton of capital gains. Logic would say do nothing and just hold, but that’s boring. I feel it is unlikely we see prices in December at or above my all in levels or we will see prices drop enough between now and then where I can exit and capture a significant portion of the premium I received. And if I’m wrong and the price moves higher I can use my pile of cash to cover and avoid being called away. I personally cannot come up with a scenario where we see IV above $435 by year end. Seems like a decent bet I can cover at some point.
Jeff
