Covered Call Recommendation on Berkshire Hathaway B (BRK.B) trading at $72.09
Strategy: Look to sell one October 2011 72.5 call for wach 100 shares of Berkshire Hathaway (BRK.B). The net debit will be $69.89 (72.09-2.20) for an assigned return of 3.73% in 24 days or 56.8% annualized.
Research Notes: This is the first time Berkshire has bought back its own shares. It tells us that the world’s best investor, Warren Buffett, thinks his own business is dirt-cheap.
Berkshire has plenty of cash to commit to this program – $48 billion of it. And the company announced it was willing to pay up to 1.1 times book value for its own stock… which means it’s willing to pay nearly $109,000 per “A” share or roughly $72.50 per “B” share. (These numbers are not exact, just close and easy to remember.)
This creates a “floor” in the stock price. Any time the stock falls much below that, Berkshire will buy it… or investors will buy it thinking that Berkshire will. As I write, both share classes are below those prices.
I like it… Your downside is limited thanks to the new buyback creating a “floor.” Meanwhile, Warren Buffett, the world’s greatest investor, is managing your money. This is a trade that can be updated each month so that the call premium recieved is monthly income. WOW! I like getting monthly income from Warren Buffett.