Yea, that is WAY to risky of a trade for me...I dont care what premiums you are getting upfront. I havent written puts on BRK in the low $100s awhile ago, but I feel like where we are in the market - you really have no idea what is going to happen. I think if a big vol induced sell-off occurs, that writing both near-dated, and long-dated puts near 1.1x - 1.x2 BV makes a ton of sense. Back in Jan of 17 one can sell the January 2019 BRK.B Put at $137.5 strike, and collect a premium of $2.20 (bid price). So, unless you see BRK.B falling ~37% in the next two years, and are happy to own Berkshire at much lower prices…this could be an interesting way to add synthetically to an already established long position. Of course if the stock rallies, you collect the premium and nothing more...that trade was obviously a home-run.
Sincerely,
VM
As globalfinancepartners has pointed out my strategy is less risky than yours. If I get put to I end up paying less for my BRKB than you just did.
Think of it as selling insurance with a claim not being a bad thing; essentially you are getting your position at a lower price.
I use put writing to enter all my long term hold position. It is like a limit order that pays me while I wait for a better price. The negative is that you might not get your position, but this has rarely happened for me.
When we were coming out of the financial crisis I was fully invested. I still wrote a lot of puts and rarely was put to. And when I was I sold a covered call and was usually quickly off of margin. So it was kind of like being on margin, but never owing any interest.
