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Warren Buffett on Option Trading (When NOT to Use) | Collection: Warren Buffett #397



[Transcript]

AUDIENCE MEMBER

Could you please comment on how you use stock options when trying to enter or exit a position in a public company?


WARREN BUFFETT

Yeah. We’ve — I think there’s one time we sold a put on Coca-Cola with the idea that, if it got exercised, we were very happy to own more Coca-Cola. It didn’t get exercised. We would have been better off if we had just bought the stock.



Usually, if you want to buy or sell a stock, you should buy or sell the stock.


And using an option technique to buy a call on a stock instead of buying the stock outright with the idea that you get it a little cheaper that way means that about four times out of five you’ll be right and the fifth time the stock will have moved earlier and you’ll have missed, you know, the transaction you wanted to have.


And so we virtually have never used options as a way to enter a position or exit a position, and I would doubt very much if we do.


We’ve used — we’ve sold these equity — long-term equity put options that were described in the press release yesterday and were described in the annual report, but that’s a different sort of thing.


If we want to buy something, we’ll just start buying it. And if we want to get out of it, we’ll start selling it. And we won’t get involved in any fancy techniques.


Charlie?


CHARLIE MUNGER

Well, if I remember right, you wrote a letter when the public authorities were deciding whether we should have option exchanges for stocks. And Warren was all alone at that time, and he wrote a letter saying that he didn’t think it would do any good at all for the country to throw out the margin rules in this fashion.


I’ve always thought that Warren was totally right. We — it’s — the idea of turning financial markets into gambling parlors so the croupiers can make more money has never been very attractive to us.


~ Please visit the site above for full video of Berkshire Hathaway Annual Meeting.

 

[YAPSS Takeaway]

"Usually, if you want to buy or sell a stock, you should buy or sell the stock.


And so we virtually have never used options as a way to enter a position or exit a position, and I would doubt very much if we do." ~Warren Buffett



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