Is Buffett getting margin calls?

Just read the article.

Anybody know the real strike price of the puts he sold?

Most press reports have said the strike price was at-the-market when it was much higher. This article states the strike prices were far out of the money at the time the contracts were written.
 
Quote from atticus:

Buffett wrote Euro-style binary puts struck at ~1400 SPX. Last I heard he was marked to a $10B loss on those. Unfortunately, that was at SPX ~1000. I sent a question into CNBC regarding the marks on those puts.
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that just FEELS like something that someone in the insurance industry would do.
 
Quote from wilburbear:

Just read the article.

Anybody know the real strike price of the puts he sold?

Most press reports have said the strike price was at-the-market when it was much higher. This article states the strike prices were far out of the money at the time the contracts were written.
More...

I read in a trade-rag that he sold ATM, and at the time the SPX was in the 1400-1450 range. I'll look for the article.
 
Just watch. I think the shit is going to hit the fan. I hear 10 days. The pain is so great among the moneyed elite, they've decided to help the poor and unwashed.

Buffett understands they can take him to zero. I'll guess the GE thing really shook the establishment.
 
Quote from atticus:

I read in a trade-rag that he sold ATM, and at the time the SPX was in the 1400-1450 range. I'll look for the article.
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Page 16 of the 2007 annual report. No date specified on the transaction, other than it falls in 2007. SPX traded ~1400 to 1574 during 2007.

The second category of contracts involves various put options we have sold on four stock indices (the S&P 500 plus three foreign indices). These puts had original terms of either 15 or 20 years and were struck at the market. We have received premiums of $4.5 billion, and we recorded a liability at yearend of $4.6 billion. The puts in these contracts are exercisable only at their expiration dates, which occur between 2019 and 2027, and Berkshire will then need to make a payment only if the index in question is quoted at a level below that existing on the day that the put was written. Again, I believe these contracts, in aggregate, will be profitable and that we will, in addition, receive substantial income from our investment of the premiums we hold during the 15- or 20-year period.


The EOY liability suggest a small loss [$100MM] where the SPX closed the year.
 
Gee, I guess he didn't hedge those puts by shorting S&P futures. That would have helped stem the losses, at least.

At what IV did he sell that bear gamma?

At what level will he have to put up more margin?

I know what the rules are for the rest of us who trade plain vanilla, but these are exotics. Are there "rules"?
 
Quote from smilingsynic:

Gee, I guess he didn't hedge those puts by shorting S&P futures. That would have helped stem the losses, at least.

At what IV did he sell that bear gamma?

At what level will he have to put up more margin?

I know what the rules are for the rest of us who trade plain vanilla, but these are exotics. Are there "rules"?
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VIX traded 10-30 in 2007. They're Euro-convention, so while they can't be exercised, they are marked to market.

Binaries are defined risk, so he essentially sold a "50/100" put. One would have to assume it's trading North of 95/100.

His risk should be limited to something approaching the $4.6B liability per the AR. So he's lost nearly $4.6B based on a "50/100" assumption.
 
Wonder how much premium he would have pocketed if he had sold them today?

I respect Buffett, and he may well be dead by the time the contracts expire, but this has to be regarded as one of the worst bets, if not the worst bet, he has ever placed.
 
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