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The transactions on Oct. 8 include two types of contracts. One is 1.19 million shares of puts at the premium of $7.03 per contract. The put option is exercisable until Dec. 9, 2008 at the strike prices of $80 a share. The other is 761,111 shares of put at $5.78 a share. It is exercisable until the same date at the strike price of $77.
The explanation in the filing says: “The put options were written by National Indemnity Company (NICO), a subsidiary of OBH, Inc. (OBH). OBH is a subsidiary of Berkshire Hathaway Inc. ( Berkshire ). As OBH and Berkshire are each in the chain of ownership of NICO, each of Berkshire and OBH may be deemed presently to both beneficially own and have a pecuniary interest in all securities of Burlington Northern presently owned by NICO. Warren E. Buffett, as the controlling stockholder of Berkshire , may be deemed presently to beneficially own, but only to the extent he has a pecuniary interest in, the Burlington Northern securities presently owned by NICO. Mr. Buffett disclaims beneficial ownership of the reported securities except to the extent of his pecuniary interest therein.”
Warren Buffett has been using put options to buy the stocks he likes to own at a lower cost. Although he is against using derivatives, but he did frequently sell put on the stocks he likes to own. As pointed out by users, if you like to buy stocks by selling puts, you need to make sure you have the cash to buy the stocks when the stocks are put on you. Not having enough cash is certainly not a problem for Warren Buffett. Instead too much cash is his problem.
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