“We have added modestly to the “equity put” portfolio I described in last year’s report. Some of our contracts come due in 15 years, others in 20. We must make a payment to our counter-party at maturity if the reference index to which the put is ......
I have read about Warren Buffett engaging in derivatives but I did not know exactly what he did.
Today, I learned that he was selling naked options! (Pardon my tardiness as this happened in 2008.)
Isn’t selling naked options risky where your loss is unlimited? Didn’t Warren Buffett warn the dangers of derivatives?
He disclosed his options position in his 2008 letter to shareholders and gave an explanation for what he has done. Besides options selling, he also went into writing Credit Default Swaps (CDS) but we are just focusing on options here. I have extracted the part of the letter that talks about selling options:
