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Warren Buffett's Burlington Northern Stake Tops 22% With New Options-Related Stock Buy

Warren Buffett's stake in Burlington Northern Santa Fe has reached 22.4 percent, with a new options-related stock purchase of over two million shares.

In an SEC filing last night, Buffett's Berkshire Hathaway says it bought 2,325,000 shares of the freight railroad for $75 each last Friday, January 30. That's a total of $174.4 million.

Burlington Northern closed at $66.25 on that day, but Berkshire didn't buy the shares on the open market.

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The Burlington purchase is the result of put options sold by Berkshire on December 3. On that day, the railroad's closed at $77.50.

In exchange for $14.8 million up front, Berkshire agreed to buy the 2.3 million Burlington shares at $75 each at the end of January. The buyer was paying for a form of insurance. In exchange for the premium of almost $15 million, the buyer of the options got protection against Burlington's shares falling below $75, which they have. If the stock had stayed above $75, the holder of the options would not have exercised them and held onto the stock instead.

So, while Berkshire paid an 'extra' $8.75 a share, that is partially offset by the $6.35 a share premium it was paid last December.

That's a net 'loss' of about $5.5 million for this batch, but similar options-related transactions last month have been money-makers for Berkshire. Gurufocus.com calculates that in total Berkshire saved about $20 million through the sale of puts.

Based on the filings, this latest buy accounts for all of the put options Berkshire has sold on Burlington.

So far, the Burlington position has been a tough one for Buffett. After rallying last spring to almost $115, the stock has dropped almost 19 percent over the past twelve months.

Most of his purchases have been in the high $70s or low $80s. Earlier in January, however, Berkshire picked up almost 4.4 million shares at an average price of $62.15, below its mid-day price today, Tuesday, of just under $67.

Berkshire now reports owning 76,777,029 shares of Burlington Northern.

Current Burlington price:

Current Berkshire stock prices:

Class A:

Class B:

For more Buffett Watch updates follow alexcrippen on Twitter.

Questions? Comments? Email me at buffettwatch@cnbc.com

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