cannot believe that buffet sold a complex option ...

Discussion in 'Wall St. News' started by mind, Nov 24, 2008.

  1. they wanted to just give WB there money, fools...
     
    #21     Nov 24, 2008
  2. Q12

    Q12

    He sold them at Indu 13,000... so VIX was prob. around 20.
     
    #22     Nov 24, 2008
  3. why do you dorks keep focusing on the expiration date. You do realize the buyer can trade the option or lock in the profit any time right? Whoever took buffet's other side already made a large chunk of coins, i doubt they are just sittingon their ass waiting for that profit to evaporate.

    stop looking at just the expiration date of an option.
     
    #23     Nov 24, 2008
  4. lrm21

    lrm21

    Its a european option and as such cannot be called in before expiration.

    2019 and 2027

    He got $4.8 billion upfront.

    I love how people Monday Morning Quarterback, a man who has built and empire.

    I would never take the other side of a trade if Warren Buffett was on it.

    http://www.fool.com/investing/value/2008/11/20/whats-wrong-with-berkshire-hathaway.aspx
     
    #24     Nov 24, 2008



  5. Ehh thats kinda how a european style option works..

    I don't see what is so complex about this trade on Buffets part...
    The reality is whoever is on the other side of Buffet wanted some liquidity to probly but on some other type of strategy and buying these puts is just part of that strategy.
    I really don't see Buffet calling around to see who will write him 15 year euro style puts at the prices he got. Probly the other way around, he thought about it for 2 seconds then said "yes".
     
    #25     Nov 24, 2008
  6. You went sniffing around in his earlobe? Yick!
     
    #26     Nov 25, 2008
  7. This dude might expire before the option does... something to consider. :D :D :D
     
    #27     Nov 25, 2008
  8. something does not add up. he supposedly got $5b in premiums selling 15-year atm puts that risk a maximum of $36b, which amounts to 14% r/r... are you sure they're atm? if so he got screwed big time. you can get better % on dec 2009 atm puts, which are only 1 year out.

    either you guys are wrong, or he's stupid. i'd bet it's the former. the puts were probably far otm.
     
    #28     Nov 25, 2008
  9. gbos

    gbos

    Actually the math on received premium is consistent with plain vanilla atm puts with long term estimated volatilities around 20-22% for the underline. There is a spread of the expirations (not all puts expire simultaneously) which is a very smart thing to do from Buffett’s side. The recorded loss of 6.7 billion for the first 9 months of 2008 is also consistent with the above assumptions with a little higher volatility estimation because of the short term effect in the average of 15years vol that the spike of recent volatility will have. And yes, I think if the above assumptions are correct the buyers of the puts are not very smart.
     
    #29     Nov 25, 2008
  10. donnap

    donnap

    I'd rather be long these puts. I'd say it's likely both sides will make money on this one. The seller has a while to wait - assuming he did not offset risk at all.

    Whoever said that the buyers are already locking in profits is probably right. But it is also possible that they screwed it up and over hedged the upside - not likely, but in this market shit happens:eek:
     
    #30     Nov 25, 2008