Stocks A to Z / Stocks B / Berkshire Hathaway (BRK.A)
No. of Recommendations: 1
PUT BERKSHIRE CL B NEW $610 EXP 12/15/28 is assigned in brokerage account XXXXX
Looks like someone said the heck with the time value of this option over the next 2 and a half years, I want you to buy my shares.
I sold this put for $112.49, so my purchase price of these Berkshire shares is equivalent to $497.51 a share. Not a great price compared to what I could buy it for today.
No. of Recommendations: 0
PUT BERKSHIRE CL B NEW $610 EXP 12/15/28 is assigned in brokerage account XXXXX
Looks like someone said the heck with the time value of this option over the next 2 and a half years, I want you to buy my shares.
It's very unusual to see this happen. It's only happened to me twice in 40+ years of trading options. An economically non-rational choice by someone that happens to randomly get assigned to you. It's rare, but it happens.
The thing that is somewhat odd is that this particular option has very little time value. I'm not quite sure why, $610 at end of 2028 is not out of the realm of possibility so there should be some time value there.
No. of Recommendations: 3
I've had short put options with significant time value assigned a few times, when it has not been rational. A nice win for me, since I did not need to wait to get the time value. It has always happened on market-melt-down days.
The last time it happened was in March 2020, on one of the really ugly market days during covid. I'm guessing that people (or institutions) may need to do apparently irrational things due to leverage. Anyway, it's been six years since I last had puts assigned that still had time value.
No. of Recommendations: 8
Looks like someone said the heck with the time value of this option over the next 2 and a half years, I want you to buy my shares.
I sold this put for $112.49, so my purchase price of these Berkshire shares is equivalent to $497.51 a share. Not a great price compared to what I could buy it for today.
The entry price was known when you sold the put, so one hopes that you'd be happy with that entry price, though there is (ahem) quite a bit of variability of exactly when you might enter--and you got an entry a LOT sooner that one might usually expect. Since you picked an option with such an extremely high strike price, you probably garnered very little time value, which means you were probably a buyer when the stock price was a little above $497, which I consider a bit rich this season. So in one way the moral of the story is to add to your long exposure more when the stock is cheap, no matter which security you use to do it.
(Note, I've written some puts lately, and they are losing money on average at the moment, so I'm not saying I know the future either)
Sometimes the reason that an option with apparently lots of time value left gets exercised is that the time value remaining is not the apparent value, but the value the person could actually realize by selling it, meaning it depends on the bid. If the option is very far out of the money as this one was, the bid/ask gap can be a chasm. Plus, being so far out of the money, the time value itself is small. Thus the sometimes you'll see lots of time value at the midpoint of bid/ask, but no time value you can actually realize by selling at the bid.
At the moment that contract has a bid/ask of 135.00 / 139.00 and an in-the-money value of $136.38. So selling the option at $135.00 would get a holder less money than exercising the option and selling the stock at today's price.
Jim
No. of Recommendations: 2
At the moment that contract has a bid/ask of 135.00 / 139.00 and an in-the-money value of $136.38. So selling the option at $135.00 would get a holder less money than exercising the option and selling the stock at today's price.
The reason there is such a wide bid/ask in this case is because it is thinly traded. But in reality, had the holder of that option put it up for sale, they wouldn't do so at $135, but would more likely split the bid and ask and try for 137 which would have a decent chance at being accepted, maybe not immediately, but perhaps after a few minutes or a quarter hour. Considering that the ask was 139, a sudden drop to 137 might become enticing to many out there (including quite likely the market maker).
I sold some 460 put options today. I figured that I bought shares at $477 on Friday, so I am certainly willing to buy some more at a net price of about $455 via put exercise assignment!
No. of Recommendations: 2
I suppose you could say I'd be equally happy to have been forced to buy it for an all-in price of $497 during any of 2028, or to have pocketed the time value I got when I sold the puts. I never modeled what it might look like in between those two points and time periods. It sounds great to get a bit of extra income on cash I'm holding in the account, but the purpose of that cash is to buy Berkshire when it's cheaper and having it tied to the puts limited my ability to do that. I suppose in that case, it's kind of good to be assigned, because I get out of the option early without buying it back (which likely would have cost me more). Now that I have those extra Berkshire shares, I can sell them and buy Calls if I feel the stock is still quite low.
No. of Recommendations: 1
I suppose you could say I'd be equally happy to have been forced to buy it for an all-in price of $497 during any of 2028, or to have pocketed the time value I got when I sold the puts. I never modeled what it might look like in between those two points and time periods.
It's always possible to just sell the shares and write a different put again. I do that when something is assigned. Not convenient in a taxable account, of course.
Jim
