Comments on: Berkshire Part 2: Selling Puts

By: Theodore Biesinger

Theodore Biesinger — Fri, 03 Dec 2010 06:00:41 +0000

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By: selling put options

selling put options — Sat, 21 Nov 2009 20:30:26 +0000

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By: The Week’s Best At VIN Value Plays

The Week’s Best At VIN Value Plays — Tue, 08 Sep 2009 05:08:14 +0000

[...] 3. Berkshire Letter P2: Selling Market Puts [...]

By: Aaron

Aaron — Sat, 31 May 2008 14:45:53 +0000

4.5BN in premiums sounds about right — and of course the potential losses could be much larger than 4.5BN depending on the path of the market. I believe he’s selling mostly to Life insurers to help offset the mark-to-market portion of variable annuity living benefit guarantees

I imagine Buffett is actually hedging the Delta position of the options and isolating Vega (since that’s where the illiquidity premium exists). This is probably a good bet — the implied vols are outrageous over such a long-term period (~30%)

FYI – The 15% return assumption –> 36BN in premium value is pretty spurious — such an optimistic outlook would make selling 20-year CDs at 10% look like a windfall even though it would represent blinding stupidity. Something tells me Buffett doesn’t run his company that way

By: Max

Max — Wed, 23 Apr 2008 00:36:15 +0000

For those still interested, I found these 2 quotes after reviewing the entire Berkshire annual report (not just the letter):

“As of December 31, 2007, Berkshire’s maximum exposure under these contracts was approximately $40 billion…”

“If the underlying indexes declined 30% immediately, and absent changes in other factors required to estimate fair value, Berkshire estimates that is could incur a non-cash pre-tax loss of approximately $2.3 billion.”

By: DT

DT — Mon, 17 Mar 2008 23:46:43 +0000

page 16: “We have received premiums of $4.5 billion”

By: fernando

fernando — Wed, 12 Mar 2008 16:38:03 +0000

I think you got the premiums number wrong. I believe the maximum loss is $4.5b