Berkshire Hathaway's stake in Burlington Northern Santa Fe is up to 19.83 percent, after Warren Buffett's holding company bought 3.3 million additional shares on Monday and Tuesday.
It reported a stake of about 18.9 percent as of October 28.
In a filing with the SEC tonight (Wednesday), Berkshire says it bought the Burlington shares at $77 and $80 a share after 'put' options it sold were exercised.
During those two days, Burlington traded between a low of $73.76 and a high of $77.50. Current price:
The seller of a put option is paid a certain amount of money to agree to purchase a security at a pre-determined price during a defined time period. In effect, the seller is writing an insurance policy for the buyer of the option, limiting the buyer's potential loss on that security.
If the security goes up in price, the buyer of the option lets it expire and the seller of the option keeps the premium. If it goes down below the insured price, or 'strike' price, then the buyer of the option can force the seller of the option to buy the security at the strike price, even though it is higher than what the security is selling for in the open market. The seller of the option, of course, still keeps the the money it received for selling the option.
In this case, the buyers of Berkshire's put options wanted to be protected if Burlington's stock price wound up below $80 or $77 two months into the future. At the time, the stock was trading around $80.