not to hurt your feelings but only an idiot except a professional who is in the insurance business would sell a naked 13 year option.
what does been a european option have to do with ANYTHING? who the hell would exercise them with 10+ years of premium left. What i am saying is you can still trade the contract just like any other option contracts, you can also lock in the profit by opening up another leg against the position. .............
You don't need to know any facts other than that he sold a big put earlier this year, and the market is down huge. Thus, the trade sucked big donkey balls.
Insurers underwrite far bigger risks all the time. Everything you said about counterparty risk applies to the people on the other side of Buffett's trade too. You say you'd never sell a put. Even if the premium was $30 bill and the max loss was $1? Ok, lol. But you're not a trader in that case.
The counterparty could hedge now just by purchasing S&P futures, getting a locked in profit. The market could then recover by 2019, leaving Buffett with his $5 billion premium. Both parties would make money in that case.