In October we reported that Warren Buffett sold puts on Burlington Northern Santa Fe (BNI, Financial). Most of these puts will expire next week.
The first chunk of these puts will expire on Monday. These puts have the strike price of $80 per share at the premium of $7.02 per share. With BNI traded at around its 52-week low at $74, Warren Buffett is positioned well with the put sell. If BNI is traded above $73 before the expiration of the puts, Warren Buffett will not lose money.
The second chunk has a lower strike price of $77 a share. The premium of these puts is also lower, at $5.78 a share. The break even price for these options is $71.22. Warren Buffett has an even better chance of making money on these puts options.
Apparently Warren Buffett likes to buy more Burlington Northern Santa Fe. Besides the puts he sold, he also bought the stocks. On Oct. 28, Warren Buffet bought 825,000 shares of Burlington Northern at $79.65 a share. This brought Berkshire’s ownership in Burlington Northern to more than 64.6 million shares, more than 18.7% of the total shares outstanding. Today Burlington Northern closed $74. We Buffett followers can get a better deal than Buffett himself.
During the Berkshire annual meeting of 2007, Buffett said that railroad business would never be "sensational," yet its prospects had improved. Charlie Munger, Vice Chairman of Berkshire Hathaway, commented during the annual meeting of Wesco Financial (WSC, Financial), Buffett and he himself “used to not like them because they needed large amounts of capital, had tough unions, and stiff competition from the trucking business. The paradigm had shifted. Now the railroad industry has a competitive advantage by double-stacking freight. With all of the imports from China, the U.S. has a huge amount of freight being sent across the county.”
In long term, these will stay true. But the recent worry about global recessions drove down the oil prices to four year lows, railroad may not have the advantages it enjoys at higher oil prices.
Warren Buffett has been taking the advantage of the Bull Market in Volatility. Lately he also sold long term options in market index. As market declines, these options added liability to Berkshire Hathaway, which caused Berkshire Hathaway lost 50% from its peak in November.
This the summary of the BNI puts Warren Buffett sold:
The first chunk of these puts will expire on Monday. These puts have the strike price of $80 per share at the premium of $7.02 per share. With BNI traded at around its 52-week low at $74, Warren Buffett is positioned well with the put sell. If BNI is traded above $73 before the expiration of the puts, Warren Buffett will not lose money.
The second chunk has a lower strike price of $77 a share. The premium of these puts is also lower, at $5.78 a share. The break even price for these options is $71.22. Warren Buffett has an even better chance of making money on these puts options.
Apparently Warren Buffett likes to buy more Burlington Northern Santa Fe. Besides the puts he sold, he also bought the stocks. On Oct. 28, Warren Buffet bought 825,000 shares of Burlington Northern at $79.65 a share. This brought Berkshire’s ownership in Burlington Northern to more than 64.6 million shares, more than 18.7% of the total shares outstanding. Today Burlington Northern closed $74. We Buffett followers can get a better deal than Buffett himself.
During the Berkshire annual meeting of 2007, Buffett said that railroad business would never be "sensational," yet its prospects had improved. Charlie Munger, Vice Chairman of Berkshire Hathaway, commented during the annual meeting of Wesco Financial (WSC, Financial), Buffett and he himself “used to not like them because they needed large amounts of capital, had tough unions, and stiff competition from the trucking business. The paradigm had shifted. Now the railroad industry has a competitive advantage by double-stacking freight. With all of the imports from China, the U.S. has a huge amount of freight being sent across the county.”
In long term, these will stay true. But the recent worry about global recessions drove down the oil prices to four year lows, railroad may not have the advantages it enjoys at higher oil prices.
Warren Buffett has been taking the advantage of the Bull Market in Volatility. Lately he also sold long term options in market index. As market declines, these options added liability to Berkshire Hathaway, which caused Berkshire Hathaway lost 50% from its peak in November.
This the summary of the BNI puts Warren Buffett sold:
| Derivative Security | Exercise Price | Transaction Date | Shares sold | Date Exercisable | Number of Shares | Price |
|---|---|---|---|---|---|---|
| Put Option (obligation to buy) | $76 | 10/16/2008 | 1,000,000 | 12/19/2008 | 1,000,000 | $6.20 |
| Put Option (obligation to buy) | $75 | 10/10/2008 | 1,217,500 | 12/12/2008 | 1,217,500 | $7.09 |
| Put option (obligation to buy) | $80 | 10/8/2008 | 1,190,476 | 12/9/2008 | 1,190,476 | $7.03 |
| Put option (obligation to buy) | $77 | 10/8/2008 | 761,111 | 12/9/2008 | 761,111 | $5.78 |
| Put option (obligation to buy) | $80 | 10/6/2008 | 1,309,524 | 12/8/2008 | 1,309,524 | $7.02 |
