commentary by: Chris.McKhann
Options are now being offered on Berkshire Hathaway Class B shares, a somewhat ironic turn for a company whose famed CEO Warren Buffett once denounced derivatives as "financial weapons of mass destruction."
Today marks the first day of trading for the options, and I see a grand total of about 40 contracts that have changed hands. This is not entirely surprising because volume in the underlying shares is not large either, with 21,000 shares trading today.
BRK.B shares are down $26.95 on the day to trade at $2,847.05. They have been stuck in a range between $2,800 and $31,150 since March, when they climbed from lows down below $2,300. The price had been as high as $4,700 in October but losses have mounted, largely because of derivative exposure.
Buffett has tried to temper his "WMD" comments since making the remarks but still says he believes in buying stock, not options. That belies his heavy use of derivatives, though he is a seller, not a buyer in most cases, using options much like the insurance his company sells.
But the new options on the B shares may allow smaller players to partake in Berkshire Hathaway's fate. The A shares trade for $88,000 each, but 100 shares of B class would cost $28,520. So while the options are not cheap by any stretch, they do allow a lower-cost alternative.
It should be noted that Buffett is not responsible for the options on his company (as opposed to the ones in his portfolio), and Berkshire has nothing to do with the options being offered.
(Chart courtesy of tradeMONSTER)
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