Berkshire’s stock is declining for a reason, but not this one. Think of something else. Perhaps it has something to do w/ Goldman, but it wouldn’t be this.

I’m brand new here. There are precious few opportunities to ROFL these days…. Thank you, sincerely.

Berkshire Hathaway Credit Risk, Index Puts Are Overblown Worries
http://seekingalpha.com/article/107153-berkshire-hathaway-credit-risk-index-puts-are-overblown-worries

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BR: Terrible Call — Berkshire Hathaway collapsed 35% since then

I would speculate that problems at BRK would shake the public and the markets much more severely than some of the commercial banks and investment banks that have had problems.

The puts are definitely Euro-style. So, since they cannot be exercised until maturity they will NEVER trade for parity (spot minus strike) until experiation. Rather, they’ll trade for the PV of parity until expiration, plus the vol value of the same-strike calls. There is a LOT of vol value to these puts/calls. Why? They still have 13.5 years till they mature.

One way of looking at Buffett’s put sales is to consider them, from his perspective, as FREE LOANS. He posts ZERO collateral on them, and he collects the premium up-front. And, he only has to pay up if they expire ITM.

I don’t know. It kinda bugs me he sold these puts, especially after his whole “derivs are a disaster” talk. It also bothers me that he did ZERO due diligence on his GS purchase. That boggles my mind. He spends years winding down GenRe’s derivs posy and in the span of an afternoon decides to invest billions with Blankfein & Co. based solely on GS’s rep. That’s a shitty decision process. Works well when you buy simple businesses. But GS is not simple, and neither were GenRe and Solly. We’ll see.

Buffet hasnt said anything “Pubicly” to me… and I hope he never does.

I meant to say:

“I’ve heard the Oracle say PUBICLY…”

But it was worth the laugh.

I dont dispute the trade… only the authors interpretation of it.

I’ve heard the Oracle say pubicly before that he is intimately aware of and involved in the management of every single derivative contract that is on the books of Berkshire. Every one. And further, given the nature of the exercise of those puts… looks like a damn smart trade to me. All derivatives, and securities involve risk. Coming from a dude whose had more years of experience taking risk successfully when others were afraid to do so than most of us have been alive, I’d be willing to bet my stake that he’s comfortable with the level of risk taken. The Goldman part is speculation at best though… why would GS have to put up collateral for a BRK trade? Doesnt make any sense. And how could the 25 bill of “Perpetual Preferreds” be looked at as collateral? Also doesnt make any sense, unless its some kind of financial wizardry I’m not aware of… which is certainly possible in this day and age of investment banks turning bank holding companies, etc.

I actually think the BNI puts are going to pay off nicely for the old chap… in either scenario. You think he wouldnt mind owning some more BNI below 70!? Come on. Its a win/win if you believe in the long term cash flows of the company. Claims on that long term stream are still uber viable.

Full Disclosure: I do own shares of BNI.