Berkshire Hathaway Attracts Bullish Option Trade as Buffett's Successor Takes Over: Options Chatter

At 10:14:28 a.m. Wednesday, an active buyer paid a $1.61 million premium for call options that give their holder the right to purchase 350,000 Berkshire Class B shares at $575 over the next 168 days. That strike price is about $70 above the current stock price. The block trade is about 23X the open interest.

Berkshire’s shares have climbed in 23 of the past 29 years under Buffett’s leadership. In announcing that he is stepping down from the CEO role, Buffett said he had no intention of selling a single share in the company after the leadership change.

“The decision to keep every share is an economic decision because I think the prospects of Berkshire will be better under Greg's management than mine,” Buffett said in the company’s shareholder meeting in May, when he announced his decision. “It may be helpful with the Board, the fact that they know I've got all my money in the company, and that I think it's smart. I've seen what Greg has done.”

While the maximum profit for that call option block trade could be unlimited, current data show just a 15% profit probability for the buyer, with the breakeven level seen at $579.63, meaning the stock price will need to climb to at least that level from the current price of $505.23 for the buyer to avoid losing money on that transaction.

Berkshire shares have moved sideways since that announcement in early May, but loyal investors remained with the company. Bloomberg data showed 11 hedge funds have at least 5% of their portfolio invested in the company.

“We have mixed views on the changes, applauding internal promotions that reaffirm our belief in Berkshire’s deep management bench, but viewing Combs’ departure as a significant loss,” CFRA analyst Catherine Seifert wrote in a note to clients Dec. 8. “Our thesis remains unchanged as we expect more changes during this transition period and we view the share are fairly valued.”

Morningstar analyst Gregory Warren had a different opinion, seeing Berkshire as “slightly undervalued.”