Warren Buffett'sBerkshire Hathaway joins the growing list of companies that investors can play in the expanding market for short term options.
These short term, or “weekly” options, cover just as they say, one week’s worth of volatility. They have become highly popular as investors hunt for an easy, cheap way to play volatility spikes.
Newly listed by the International Securities Exchange (ISE), the weekly options run on Berkshire Hathaway “B” shares start at $60 puts on the downside to $110 calls on the upside. Berkshire Hathaway class “B” shares currently trade at about $78 per share and have a 52-week trading range of $63.35 to $87.65.
The addition of Berkshire Hathaway reflects a growing demand in the marketplace for ways to protect investors against sharp moves in the price of a stock.
These moves can be caused by any variety of events including earnings or an unexpected change in the c-suite. According to a recent report from the Tabb Group, short-term options (STOs) or weeklys can account for as much as 25 percent of the options volume on a given day, and were 8.3 percent of the total volume in options for all of 2011.
Exchanges decide to add stocks to the list of weekly options available for trading for many reasons including expectation of future volatility or volume. Berkshire Hathaway "B" shares is somewhat unusual in that it has a relatively low trading volume in both its options and its underlying shares.
Open interest on all outstanding BRKB options is 326,923 contracts with interest skewed to the upside, 1.2 calls for every 1.0 put according to data provided by Interactive Brokers. The biggest open interest on a single strike is the $90 calls with 19,000 contracts as of close of business February 15.
That is dwarfed by open interest on single stock options such as Bank of America with open interest at 9.403 million, or the SPDR S&P 500 Trust with 21.562 million contracts.
The decision to add a stock to the growing list of weekly options available for trading can also be made to actually encourage volume says Bill Lefkowitz, vFinance Investments Investment Strategist.
But, in the case of Berkshire Hathaway, he says, it more likely the result of institutional demand. “Stocks that are held by the larger investors are getting these ‘weeklys’ including stocks like Caterpillar and Johnson & Johnson which rarely move,” says Lefkowitz. “At the same time they are bringing out highly speculative stocks like Dendreon.”
Follow me on twitter @LoriSpechler and read more of my posts on