We have reported that the puts Buffett sold in Oct. were about to expire this week. The first chunks of these puts have the strike prices at $77 and $80. BNI has been traded below these prices this week, and these puts were exercised, and Buffett bought BNI 2.5 millions shares at $80/share and 761,111 shares at $77/share, all above market prices.
Still, Buffett made a little profit from these puts. After collecting option premiums, his real cost on the 2.5 million shares is $72.97/share, on average, about 4% lower than the market prices. For the other 761,111 shares, he had lower strike prices on them, and his profit is above 5% on these options.
Buffett has been continuously accumulating BNI shares during the market turmoil. On Oct. 28, Warren Buffet bought 825,000 shares of Burlington Northern at $79.65 a share. This week’s puts exercises brought Berkshire’s ownership in Burlington Northern to more than 67.8 million shares, more than 19.7% of the total shares outstanding.
We also reported that Warren Buffett started to sell put options again on Burlington Northern Santa Fe (BNI) on last Wednesday (Dec. 3). This is the summary of his puts on BNI:
| Derivative Security | Exercise Price | Transaction Date | Shares sold | Date Exercisable | Price | Share Cost if Execersed | Price on Date of Exercise (close) | Option Gain |
|---|---|---|---|---|---|---|---|---|
| Put Option (obligation to buy) | $75 | 12/3/2008 | 2,325,000 | 1/30/2008 | $6.35 | $68.65 | ||
| Put Option (obligation to buy) | $76 | 10/16/2008 | 1,000,000 | 12/19/2008 | $6.20 | $69.80 | ||
| Put Option (obligation to buy) | $75 | 10/10/2008 | 1,217,500 | 12/12/2008 | $7.09 | $67.91 | ||
| Put option (obligation to buy) | $80 | 10/8/2008 | 1,190,476 | 12/9/2008 | $7.03 | $72.97 | $ 75.20 | 3.1% |
| Put option (obligation to buy) | $77 | 10/8/2008 | 761,111 | 12/9/2008 | $5.78 | $71.22 | $ 75.20 | 5.6% |
| Put option (obligation to buy) | $80 | 10/6/2008 | 1,309,524 | 12/8/2008 | $7.02 | $72.98 | $ 76.55 | 4.9% |
Rate This Article: |
  |
Click to see which Gurus bought BNI , BRK-A , BRK-B ?
Check out Warren Buffett Stock Picks, and Current Portfolio,
User Comments:
1. Norman Gershgorn says on Dec 11, 2008 at 7:59 AM:
Good article. The chart right above is very helpful. Regards Norm
| Quote This Comment Add Your Comment | Rate this comment: |
2. Stockdocx99 says on Dec 11, 2008 at 8:17 AM:
Since [put] options are sold in round lots of 100 share multiples I do not understand how they can represent 'odd lot' numbers of shares as you indicate for the expiration dates of Dec. 8 and 9.
It is more likely that Buffett simply took delivery of the BNI shares on the 'in the money' puts this week then that he cashed out for the 3 - 5% theoretical profits you indicate.
When speaking about option sales you should be talking about 'contracts' sold rather than 'shares'. Each contract is for 100 shares but you do not trade in shares when selling or buying options.
It is more likely that Buffett simply took delivery of the BNI shares on the 'in the money' puts this week then that he cashed out for the 3 - 5% theoretical profits you indicate.
When speaking about option sales you should be talking about 'contracts' sold rather than 'shares'. Each contract is for 100 shares but you do not trade in shares when selling or buying options.
| Quote This Comment Add Your Comment | Rate this comment: |
3. Gurufocus says on Dec 11, 2008 at 8:44 AM:
The shares and numbers are from the original filings. We are wondering why is that, too.
| Quote This Comment Add Your Comment | Rate this comment: |