The Ghost Of Put Options Past

Publish date:

Berkshire, once again, laboring under the cloud of the long dated index puts the firm has sold, has hit five year lows. The fear is that collapsing indexes, against which Berkshire has written a number of long dated puts to unknown counterparties (-cough- Goldman -cough-) will cause writedowns in the coming quarterlies. True, Berkshire doesn't have to pay out on these instruments until 2019 at the earliest, but that's not stopping the panic and it drove Berkshire Class A shares down to $73,677.30 this afternoon. Shares have since recovered some, but the cloud lingers.
As we've mentioned before, the options are European style (i.e. cannot be exercised before the expiration date) and Berkshire is apparently not required to put up collateral based on the price of the options or their underlying, but rather only in the event the firm itself suffers some sort of impairment. (There aren't a lot of details here, but we suspect this means a credit downgrade or a significant cash crisis). In a way, this has made Berkshire stock a proxy for global index expectations. Insofar as Charlie and Warren don't care about stock price, this probably doesn't mean much- except that now might be a good time to buy back some stock.
Buffett's Berkshire Drops to Lowest in Five Years [Bloomberg]


This Is Warren Buffett Telling A CNBC Anchor How Difficult It's Been To Bang The Guy's Wife

As some of you may have noticed over the years, Warren Buffett has carved out a pretty unique niche for himself in using analogies about whorehouses, porn shops, one-night stands, taking Viagra, fondling inanimate objects (or simply laying the ground work to do so) when discussing business. Regardless of the topic, no matter the setting, he's prepared to go out of his way marry aberrant sex fetish with folksy business wisdom. So naturally, when asked by Andrew Ross Sorkin on Squawk Box this morning if a $22 billion acquisition by Berkshire Hathway that didn't pan out earlier this year might happen at some point in the future, Buffett told the gang "It's always possible. When a girl hangs up on me, I try again," rather than "Sure," or "Yeah, anything can happen," or "Never say never, Andy." At this point, the anchors could have moved on but Joe Kernen saw an opening for a little repartee and went for it, not realizing that he was dealing with a professional. [8:45