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Strategies & Market Trends : Value Investing
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To: MCsweet who wrote (33813)3/16/2009 11:37:41 PM
From: Jurgis Bekepuris  Read Replies (1) of 78958
 
A naked put is about as speculative as it gets, even if it is long term.

Actually it's not, especially when counterparty cannot force it to be delivered at any random date. Buffett wrote up a pretty detailed analysis if you cared to read. But I guess you won't believe him. So maybe it's time for doing some math analysis on your own to figure out the possible risks and rewards. Would be more worthwhile than parroting "common knowledge". ;)

The only place where Buffett may have been wrong is not accounting for the cost of losing AAA rating. I.e. it may be that incremental cost of capital due to rating loss is bigger than the gain from the put. But then there is no guarantee that Berkshire would have held AAA even without the put. WFC/USB/AXP positions might have scared Fitch enough.
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