I totally nerded out. It was financially unnecessary, and I could get surprised again by market volatility, but I suspect it’ll work out just fine.
It’s been a long time since volatility was this high, and when it spikes then the options markets go nuts-- in a good way.
[Disclaimer: McMillan’s “Options As A Strategic Investment” (try a library) teaches the theory & tactics of covered call options and naked puts. If you can’t make the time to plow through this doorstop, however, then you shouldn’t be selling options.]
I’ve done this since 2011, 2-3 times per year when the prices were driven by volatility. I haven’t done it at all since mid-2016.
Last week I sold two naked puts on Berkshire Hathaway “B” shares. One contract expires in June and the other in September. BRK was trading at about $195 and the put’s strike price is $175. The June contract sold for $3.35 and the September one for $5.20.
This is a rebalancing technique. If BRK drops below $175/share (it could happen!) then the trader who bought the puts could force me to buy shares for $175. I’m good with that. I’ve followed the company for 20 years and the board will start buying back its own shares at 1.2x book value, which is roughly $150-$170/share.
The other possible outcome is that the options expire worthless (because BRK/B stays above $175/share) and we keep the money.
I’m not expecting any drama between now and September, but then options sellers rarely anticipate unexpected drama. I’ll post here if anything happens.