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Michael G Riley is currently a managing member of Coastal Management Group LLC a Rhode Island registered Investment Advisor. Michael retired from 25 active years on Wall Street in 2002 and in 2005 formed Coastal Management Group with longtime associates Daniel Mintz and Gary Herman. CMG LLC... More
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  • Berkshire Hathaway Meeting and Derivatives..some ideas 1 comment
    May 8, 2009 05:41 PM | about stocks: COH, NRG, BRK.A, BRK.B, WFC, BNI

       &nbs... Having just returned from Omaha and the annual Berkshire extravaganza I have a few observations foloowed by relevant some options strategies to recommend.

       &nbs... These strategies are based on the concept that the March 2009  lows will hold for at least 1 year and that Mr' Buffett has selected stocks with a margin of safety in his portfolio. As an aside, I was amazed that the overall attendance was up and that my walk through Borsheims, the high end jeweler, was remarkably easy with many visible counters and idle sales people.The free food line was longer than I've ever seen. Draw your own conclusions.

       &nbs...  Let me preface these recommendations with the disclosure that our hedge fund has medium to  very large positions in all the names that follow as part of a strategy that has little to do with this discussion.

       &nbs...  i paraphrase ::

       &nbs... We received $4.9 billion on the sale of puts which come due in 15 to 20 years. We would have preferred to sell them now rather than when we did but we would not get the favorable collateral agreements now and the odds are extremely good that we will make money. We recently lowered the strike price on some S&P puts from 1514 to 994 and shortened the duration from 18 years to 10 years.

     
       &nbs... on     inflation
     
    WB:   &... It’s clear we will have inflation over time. I guarantee that the dollar will buy less 5, 10, 20 years from now. Government policies will cause inflation. Other countries are doing the same – running large deficits – so it’s difficult to say how the dollar will do relative to other currencies. Our government is doing things on a scale we’ve never seen before. Volker was outraged that the FOMC will accept 2% inflation. We’re taking in less money from taxes. Holders of government bonds will be penalized due to shrinkage of the real value of the dollar. Your own earnings power is the best hedge against inflation. Investing in the earnings power of great companies is the next best hedge.
     
       &nbs... on risky sectors
     
       &nbs... The higher the end in retailing the harder it’s been hit. This will last a long time. The service business will do a bit better because it requires less capital.
       &... will do a lot more in utilities. Iowa is a net exporter of electricity partly because of wind power from Midamerica. We don’t get rich on utilities but we don’t get poor because we get a regulated return. We’re more concerned about unregulated capital intensive businesses.
     
     
       &nbs...  And Mr Munger commented that the strategy of mimicking the Berkshire  portfolio selections was a "very smart idea"
     
     
       &nbs...  So here is a small portfolio of trade ideas
     
     
    •    &nbs... Burlington Northern( 71.05)&... cash secured put sale    bni
       &nbs...  sell 10 BNI October 50 puts   at $1.30 
     
       &nbs... buy $50000 tbills  yields approx $100  + $1300 put premiums=  1400/50000= 2.8% raw or
       &nbs... 5.6% annualized
     
       &nbs... or  on  margin as follows
    If the stock remains above the exercise price
    Profit/Loss1,300.00
    Return11.91%
    Annualized26.63%
     
     
    •    &nbs... ( 25.50)   cash secured put sale
     
       &nbs...  sell 15  WFC  Jan 2010   12 1/2   puts  @ 1.05
     
       &nbs... buy 18,750 tbills yield approx  $90  +  $1575=  $1665/$18750= 8.88 % raw * 360/252= 12.68%
     
       &nbs... on  margin as follows margin= $5760
    If the stock remains above the exercise price
    Profit/Loss1,575.00
    Return27.34%
    Annualized39.06%
    •    &nbs... (19.40)  &nb... cash secured put sale
     
       &nbs...  sell 10   NRG  Jan 2010    12 1/2  puts   @ 1.00
       &nbs... Buy $12500  Tbils  yld approx $50  + $1000 option premium = $1050/$12500=8.4% raw  or
       &nbs... 8.4*360/252= 12% annualized
     
       &nbs... or on margin as follows    margin= $2955
    If the stock remains above the exercise price
    Profit/Loss1,000.00
    Return33.84%
    Annualized48.34%
     
     
     
    •    &nbs...  Coach industries  ...  buy puts cash
     
       &nbs... 10    COH November  20  puts  @ 1.00
     
       &nbs... cash outlay  &nbs... $1000 plus commisions
     
     
     
       &nbs... This portfolio targets themes in the berkshire portfolio and generates cash and is extremely conservative. There is a very small likelihood that Coach will do well AND you will be put shares in  NRG, WFC,and  or BNI.
       &nbs... mg riley
       &nbs...
     
       &nbs...

     

    Themes: opitons, buffett Stocks: COH, NRG, BRK.A, BRK.B, WFC, BNI
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This post has 1 comment:

  •  
    Nice post. Cheers for offering the strategies and explaining them in such an accessible way.
    May 10 01:22 PM | Link | Reply
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