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The week's question
In December 2024, in the thread "Re: BRK: Why Not XOM?", BreckHutHigh asked the members: "What about the long road trips with kids?" This week it is put to everyone again. The button below opens the small thread re-asking it - read what others have said so far, then give your own answer as an ordinary reply.
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Stocks A to Z / Stocks B / Berkshire Hathaway (BRK.A)
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Author: mungofitch 🐝🐝🐝 GOLD
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Number: of 21944 
Subject: Re: An options strategy
Date: 02/11/24 1:23 PM
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No. of Recommendations: 9
We’ve recently sold to open a few covered call contracts (June 2024, 400&405)but it’s only amounted to 3% of my full share count/control and only in an IRA. For those of us interested in perhaps bumping up their # of covered calls, how would you advise/encourage an options amateur to find the right balance of writing enough covered calls, but not Too much. Where is the right balance, all assuming you have a pretty good size BRK position? Thanks

Tough question. I imagine if you asked 100 people you'd get around 150 different answers.

For me, determining the right way to use options, if any, is a very deliberate multi step process.

* First, make sure the underlying security is bulletproof. For Berkshire I'm happy on that front.
* Second, get a good handle on the valuation level. Is it overpriced, more expensive than usual, in the average zone, pretty cheap, or "back up the truck"?
* Given the pricing, and your portfolio size and buying power, and your cash needs, decide how much stock you'd really like to own for the next while until the situation changes. The answer might occasionally be "as much as possible".
* Only at the end, figure out if options might help you in the current situation.

For example, when it's really cheap, it is worth considering deep in the money call options to get a bit of leverage for the expected rebound. This sometimes requires extraordinary patience, but can work well.
When it's overpriced, maybe simply lightening up makes sense: sell some. "A motion to adjourn is always in order". If Berkshire were trading at twice book, I don't personally see a need to own any till the situation improves.
When it's at the high end of the usual range of valuations, to the extent that there is perhaps no reason to expect a positive on year return, perhaps consider writing calls at or a bit above the current stock price.
I'm not saying anyone else would agree with even considering these things, but they are the sort of things one might consider---and the times it might be worthwhile to consider them.

All of these concerns might get modified by a bit by your personal tax situation, but the steps would still be similar

Last thought:
I have made a boat load of money buying low strike calls to get leverage.
I have made some beer money writing calls. It's more of a hobby scale thing. In particular, WRITING options means you have to be prepared for two outcomes.
Even if it made financial sense to open the positions, it would be quite the nuisance to have your entire Berkshire position called away.

Jim
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This community has written 21,448 posts about Berkshire Hathaway. The article-length ones it recommended most:
BRK: Why Not XOM? · 62 recs · 2024
Second quarter comments · 60 recs · 2023
Berkshire's Profit Contributors · 57 recs · 2023
Summary of 2Q 2026 · 54 recs · 2026
3Q Summary · 53 recs · 2024
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