When selling BRK covered calls how far out expiry dates do you usually chose?

This may be highly specific to my situation, but here is my view.

My sale of covered calls against my holdings last year was the first time I had sold covered calls against my BRK holdings I believe. I really do not want to have shares called away that would cause me to incur a painful tax event so I was only selling covered calls in my non-taxable accounts. As the price of BRK was increasing in the first quarter of 2022 it was reaching multiples of book value,and my view of intrinsic value (IV), that I have rarely seen. In my estimates it was
in the upper decile of historical comparisons at the time.

I have moderate confidence in my ability to predict IV 12mo in the future but not much further other than to say it will most likely be steadily higher. I felt like a fair forecast for end of 2022 IV for BRK was ~$350 at the time and BRK has rarely traded above my view of IV. In Q1 2022 I was selling Jan23 covered calls that would have netted me a price between $360- $365. As Jim and others have said, when trading options always be prepared for the least desired outcome to be the one you face at expiration. It was a bit like a limit sell order for an acceptable future return if called away, or a nice return boost if the calls were bought back at lower prices or expired.

The outcome was not optimal but I quit chasing perfection long ago. I was able to buy the calls back in May and capture about 50% of the premiums. I used those profits to fund a portion of the deep ITM calls I purchased in June when the share price continued to fall. It certainly wasn't life changing but was a pleasant boost.


Jeff

Berkshire Hathaway FAQ

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