The Ghost Of Put Options Past

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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]

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