While iconic investor Warren Buffett has warned against trading stock options, such trading began for his Berkshire Hathaway this week on the Chicago Board Options Exchange.
In 2008, during Berkshire’s annual meeting, Buffett said, “Usually, if you want to buy or sell a stock, you should buy or sell the stock.”
“Using options, four times out of five you will be right, the last one you’ll miss. I’ve virtually never used options as a way to enter or exit a position.”
Nevertheless, investors can now do so on Berkshire stock itself. The CBOE provides trading of contracts based on Berkshire’s Class B shares.
Berkshire wasn’t a party to the CBOE’s decision to offer the options, and the company doesn’t receive any money for their sale.
“It’ll be interesting to see how much liquidity will be there, because it’s a fairly thinly traded underlying stock,” Steve Sosnick, equity risk manager at Timber Hill, told Bloomberg.
“Because Berkshire is such an expensive stock there’s always a desire among retail investors to gain exposure to it with a smaller cash outlay.”
Options, of course, are a form of derivative. Buffett has railed against derivatives in general, despite using them himself, once famously calling them “financial weapons of mass destruction.”
But that hasn’t stopped Berkshire from writing options — on the Standard & Poor’s 500 Index and on junk bonds, for example. Those positions have caused large losses for the company in recent quarters.
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