How To Buy Warren Buffett For Pennies On The Dollar

By Lee Lowell

Thank you for your interest in “ How To Buy Warren Buffett For Pennies On The Dollar”. I’m sure you will find the information both fascinating and enlightening. I also hope it will offer you a new perspective on a great trading strategy that can yield fantastic results. The ebook spans a timeframe of a few years from 2017-2019, in which I update the pricing of the strategy for each year. This will allow you to see how the trades developed over time. This is one of my favorite strategies to use in the stock market and I hope it bring much success in your investing journey. Best wishes,

Lee

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How to Buy Warren Buffett for Pennies on the DollarSounds intriguing, right?

Well, we're not going to buy Warren Buffett literally, he's not for sale.

But, we are going to buy & invest alongside him for pennies on the dollar.

There's an amazing way to get a foothold into all of Buffett's holdings with far less money at risk while gaining the opportunity to triple the returns.

It is a timeless strategy that can work in any environment and is appropriate for any type of investor.

But before we get to the actual trading strategy and learn to share in his investing mastery, let's look at Warren Buffett himself and see what he's all about and what makes him tick. And most importantly, why do we want to buy him?

The Most Successful Investor Of All Time

That's why!

There's no denying the fact that Warren Buffett could possibly be the greatest investor of our lifetime.

The "Oracle of Omaha", as he's called, is currently worth north of $75 billion, and each year dukes it out for the title of the World's Richest Man.1

That slugfest typically includes Microsoft's Bill Gates, Zara's Amancio Ortega, Facebook's Mark Zuckerberg & Amazon's Jeff Bezos. Click here to see a daily real-time list of the world's richest people.

But you won't find Warren Buffett leading your typical richest-man-on-earth lifestyle.

No, at 86 years old, he still lives in the same modest home he bought in Omaha, Nebraska in 1958 for $31,500. He drinks Cherry Coke throughout the day and fuels his junk food habit by eating ice cream and potato sticks.2

1 https://www.forbes.com/billionaires/list/#version:realtime_show:1

2 https://www.entrepreneur.com/article/290381

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He runs the Berkshire Hathaway Company, from which he earns a $100,000 per year salary, a level not even close to what some would call an over-the-top income. It's also the same take-home pay he's had for the last twenty five years. According to him, that's plenty to support his simple lifestyle.3

And that simple lifestyle doesn't include much technology. He still uses a Nokia flip phone, loves to watch sports, plays bridge (with Bill Gates) and even plays the ukulele.4

Other than his passion for running Berkshire Hathaway, he loves to read. He maintains he spends about 80% of his day reading. He says, "That’s how knowledge works. It builds up, like compound interest."5

His commitment to philanthropy is no joke either, and one that makes him a true hero. He has pledged to donate 85% of Berkshire Hathaway's funds over time to charity, many of which has already gone to The Bill & Melinda Gates Foundation. What a great guy!6

Berkshire Hathaway

And speaking of Berkshire Hathaway - what is it exactly?

It's the part of Warren Buffett's life that's probably made him the most famous (and most rich!)

Berkshire Hathaway is a holding company that Warren Buffett has been running since the 1960's. A holding company in itself does not produce any goods or services. Rather, it either wholly buys, or accumulates shares of other companies in order to create an investment company of its own.

Berkshire Hathaway is a company in which others can invest in, essentially piggybacking the investing prowess of Buffett himself. But the shares don't come cheap.

3 http://www.businessinsider.com/facts-about-warren-buffett-2015-9/#he-doesnt-think-money-equals-success-i-

measure-success-by-how-many-people-love-me-and-the-best-way-to-be-loved-is-to-be-lovable-22 4 https://www.entrepreneur.com/article/290381

5 https://www.entrepreneur.com/article/290381

6 https://www.entrepreneur.com/article/290381

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Berkshire Hathaway Class A shares (NYSE: BRK-A) cost a whopping $263,000 per share as of July 31, 2017. A tad bit expensive for the average investor!

This is the most expensive stock listed on any exchange in the world, and Buffett likes to keep it that way because he feels it will attract the "right" type of investor. That right type of investor is one who loves to hold stocks forever and is not concerned with short-term trading speculation. This is also a reason why Buffett says he will never split the stock.7

So what's a small guy (or gal) like us to do?

Luckily for us, there's a smaller class of Berkshire that is priced for the average investor and has all the same characteristics as it's bigger bro.

It's the Berkshire Hathaway Class B shares (NYSE: BRK-B) and they trade for a more palatable $174.70 per share (as of July 31, 2017).

In case you want a bit more detail, here's a great article that describes the difference between the Class A shares and Class B shares.

And it's those Class B shares that will be the subject of our strategy today.

7 https://en.wikipedia.org/wiki/Berkshire_Hathaway

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Nothing But Up

Take a look at the long-term chart of Berkshire Hathaway since 1995:

Courtesy eSignal

If you bought one share of the Class A stock in 1995 at $20,000 per share (gulp!), your investment would now be worth a staggering $263,000 per share. That's a gain of $243,000 per share and a return on investment (ROI) of a cool 1,215%!

Compare that to the movement of the S&P 500, which in itself has also done spectacularly since 1995, but not nearly as well as Berkshire, due to the large down-moves in 2002-2003 and 2008-2009 .

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Courtesy: eSignal

The S&P 500 index was trading for roughly $450 in 1995. Today it's worth $2,472. That's an incredible ROI of 450%. No one would ever complain about returns like that, but Berkshire topped that by almost three times. Score for Buffett!

There's no denying that Buffett has the magic touch.

He has two investing rules:

Rule #1: Never Lose Money

Rule #2: Never Forget Rule #1

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Pretty easy, huh?

Well, Warren Buffett's hold time for his investments is basically forever. He truly understands the value of time, re-investing dividends, and compounding interest.

He invests in things he can understand, that provides needs for people, will be in business for a long time, has high and sustainable profit margins, and believes will have a long-term favorable and upward trajectory.8

Here's a handy website that lists the current holdings of Berkshire Hathaway (a gift to all of us!)

Those investing principles have served him well and the evidence is clear - Warren Buffett is one of the greatest investing legends of all time. You don't get a net worth of $75 billion by accident.

Why not follow his investing prowess? His holdings are right in front of us in the form of the Berkshire Hathaway shares.

So the question to ask now is - how do we get onboard?

Buying Buffett For 70% Less

What does that even mean - buying Buffett for 70% less?

I'm going to show you an ingenious options-trading strategy that allows you to buy into Berkshire Hathaway Class B shares (NYSE:BRK-B) for a third of the price and receive triple the returns.

This means that you'll spend 70% less money in getting a stake with Warren Buffett, have 70% less money on the line, and triple the returns of the master himself.

Is that even possible?

It completely is, and smart people are doing it every day.

If that sounds like something you'd like to do, then keep reading.

8 http://www.investopedia.com/financial-edge/0210/rules-that-warren-buffett-lives-by.aspx

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Options Are Where It's At

Don't run away because I mentioned that this is an options-trading strategy.

Options are amazing! I've been trading them successfully for over twenty five years and I'm going to show you the best way to play them for this specific investment.

Let's hit on a few option-trading basics:

1. There are two types: call options & put options. We will only focus on call options.

2. There are both buyers and sellers of options. We will only focus on buying options.

3. There are many different "strike prices" & expiration dates to choose from. I will show you the best ones.

4. Don't worry! It's going to be fun!

As mentioned, we will only be buying call options for this strategy. This is a very bullish trading method, which is appropriate, as we are preparing for long-term upwards movement in Berkshire Hathaway.

If you are a stock buyer, then you are going to love this type of trade.

Let's be clear right upfront though- we are discussing a strategy today that will

benefit from upwards movement. You need to be bullish on Berkshire Hathaway

in order to use this methodology.

One of the biggest benefits of buying call options is that you can get a foothold into a stock of your choice for a HUGE discount. It allows you to control a large amount of stock with a very small upfront investment for a time period of your choice . Essentially, you're buying the stock for pennies on the dollar.

So how do we do that?

When buying call options, you are only required to pay for part of the cost of the stock now, and if you wish, you will pay the balance at a later date.

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It is the ultimate "lay-away plan".

In essence, what you're doing is using the call option in lieu of the stock.

Another benefit of buying call options is that you can take the extra cash you're saving on this trade and spread it around to other investments.

Call options are traded as "contracts". And each contract represents 100 shares of stock.

If you are interested in buying 500 shares of a stock down the road, then you would purchase five (5) call option contracts.

If you wanted to buy 200 shares of stock, then you would buy two (2) call option contracts.

Simple.

You have to decide for yourself how many shares you would be willing to pay for in full down the road, as the final payment would be due at option expiration.

But, as part of this strategy, I will show you a way where you'd never have to pay for the stock in full (explained later). It's super easy.

Going Deep Is The Key At this point, there's no better way to explain how this option strategy works than by using a hypothetical example.

So far, we know that we'll be buying call options to get us a stake into Warren Buffett's Berkshire Hathaway Class B shares (BRK-B) at a big discount.

But there's a very specific call option buying strategy to use, out of the hundreds of different ones available, so pay attention!

One share of BRK-B currently costs $174.70 per share.

To buy 100 shares, you would need to shell out $17,470.

How would you like to be able to control those same 100 shares for $4,775? That's more than 70% less than buying the shares outright.

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And it also means you have $12,695 less at risk.

Along with that, you'll have the opportunity to triple your gains while getting almost point-for-point movement with the stock (explained below).

Can't argue with the strategy so far.

Take a look at the picture below which is a typical "Option Chain" that shows the prices for a sampling of BRK-B options that expire in June 2018.

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Courtesy OptionsXpress.com

The only columns that you'll need to concentrate on are:

1. The "Strike" column

2. The "Bid & Ask" columns

3. The "Delta" column

Scan down the Strike column until you get to the $130 strike, then scan over to the Bid/Ask columns.

We always take the mid-point between the bid/ask prices to get our fair value for the price of the option.

You'll see that a fair value for the $130 strike is $47.75

In order to understand how much that call option will cost in total dollars, you need to multiply it by the 100 share multiplier.

As mentioned earlier, each individual option contract consists of 100 shares of stock. That's the 100 multiplier.

So you take the $47.75 option price and multiply it by 100, and you get the total cost of $4,775 per each option contract.

Why did we pick the $130 strike price and what does it even do for us?

The beauty of buying options is the leverage it entails, and the fact that you only have to put up a fraction of the stock's full cost, is what makes it appealing.

When someone buys the $130 call option, it means they are contracting themselves out to buy BRK-B at $130 per share at the June 2018 expiration date. But in order to buy BRK-B at $130 per share, they must pay $47.75 per contract today, as that's the option's going rate.

Until expiration day arrives though, we are only responsible for paying the $4,775 at the time of buying the call option. The other $13,000 ($130 strike price x 100 shares) would be due at expiration.

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Paying only $4,775 now is more than 70% cheaper than buying 100 shares of the stock outright for $17, 470.

See, the ultimate law-away plan.

But how could anyone buy BRK-B for $130 per share if it's currently trading at $174.70?

That's the beauty of options trading.

You can contract yourself out to buy the stock at any price you want, but the difference between your desired price and the current price of the stock will be paid by you in the form of the option price, plus an extra little "time" premium.

If you add up your current cost of $4,755 to the balance of $13,000 that you'll pay at expiration, you get a total value of $17,775. That's just a touch more than the current value of the stock which costs $17,470 for the same 100 shares.

The difference between those two values is what we call "time value", and it's the extra money you end up paying for the benefit of having such a low entry price and for being able to carry it for such a long period of time.

Even though you'd pay a little more in the end, it's still a great deal to have to pay 70% less now and get triple the returns (explained below).

But why choose the $130 strike when there are literally hundreds of other strike prices to choose from.

Here comes the "secret sauce" of the whole strategy.

You have to buy a deep-in-the-money (DITM) call option with a Delta of at least

90%.

Wait, what? Don't worry, I'll explain.

As the title of this section says, "Going Deep Is The Key" - deep-in-the-money, that is.

What does DITM mean?

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Any call option whose strike price is set below the current price of the stock is considered to be "in-the-money" (ITM). So, any strike price below $174.70 is considered in-the-money.

But a deep-in-the-money (DITM) strike price is one that is set really far below the current stock price, and one that has a 90% or greater Delta (check the Delta column).

In the option chain, you'll see that the DITM strikes with a 90% or greater delta are the $130 strike and lower ($125, $120, $115, etc). The $130 call is currently sporting a 91.32% Delta.

Why is the Delta so important? Glad you asked, as it is one of the other requirements to make this strategy successful.

The Delta is a by-product of the option pricing formula and it tells us how much the option price should move in conjunction with any move of the stock price.

The higher correlation to the stock's move, the better. For our purposes, 90% Delta is the lowest we want.

A 90% Delta tells us that for every $1 move in the stock price (higher or lower), the option price should move roughly 90% of it.

If BRK-B moves from $174.70 per share to $175.70 per share, then the $130 call option's price should move from $47.75 per contract to roughly $48.65 per contract, and vice versa.

In profit & loss terms, if you held 100 shares, you would make $100 on that move. If you held one call option contract, you would make $90.

If the stock goes from $174.70 to $180.70, the $130 call option should move from $47.75 to $53.15.

This would equal a $600 gain for the stock holder and a $540 gain for the call option.

How do we know for sure that the option price will move the way it's supposed to?

We can use our trusty option calculator to prove it.

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Courtesy Ivolatility.com

In the option calculator, our inputs are the left and the outputs are on the right.

We've shown the value of the $130 call option (circled) at its current $47.75 price per contract with BRK-B stock at $174.70 per share (also circled). We've also used the June 2018 expiration date on the inputs.

Courtesy Ivolatility.com

In this second calculator, we've raised the price of BRK-B to $180.70 per share. If the Delta of 91.32% rings true, the value of the $130 call option should match that move by 91.32% and go up to at least $53.20.

And that's exactly what it's valued at now (circled). Delta truly works.

You may notice a very slight difference between the Delta from the option chain and the Delta from the option calculator.

That's just due to variations in the option pricing formula used by OptionsXpress & Ivolatility.com. No biggie. The Delta still works as it should.

DITM and high Deltas go hand in hand. You can't have one without the other.

As I said in the beginning, Going Deep Is The Key.

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The whole idea of buying DITM is because you want almost point-for-point

movement with the stock. No sense in buying options which don't move when

the stock does. Right? A high Delta assures you of that point-for-point

movement. That is so critical to the success of this strategy.

What about breakeven? What's the cost-basis?

If you buy the stock outright, your cost-basis is $174.70 per share. That's a no-brainer to figure out.

As alluded to above, in order to calculate your cost-basis when buying the call option, you add the strike price to the cost of the call option.

$130 strike price + $47.75 option price = $177.75 per share.

Our break-even and cost basis is $3.05 per share higher than if we bought the stock outright at $174.70.

The goal is to buy the call option that gets you very close to the same breakeven as the stock. You'll never find an exact match, but you'll be able to get pretty close.

As long as you choose a strike price that has at least a 90% Delta, it should be very close to the cost-basis of the stock.

Now, I want to play devil's advocate for a minute and quickly show you what the scenarios would be if you bought a different strike price with a different Delta.

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Looking at the option chain again (see below), what if you chose to buy the $180 call option for a fair value of $8.60 per contract?

Courtesy OptionsXpress.com

This option strike is out-of-the-money (OTM) because it is set higher ($180 vs. $174.70) than the current price of the stock, but you still get to control the same 100 shares as if you bought the $130 call.

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In this case, the option would only cost you $860 versus the $4,775 you spent on the $130 call.

You're probably thinking, "why wouldn't I buy the $180 call instead? It's so much cheaper!".

Yes, that's entirely true.

But look at its Delta. It's only 47.21%

That means for every $1 move in BRK-B stock, your option value will only move about $.47 of it.

If BRK-B moves by $1 per share, you want that call option to move big too, not only 47% of it.

The breakeven on the trade would be $188.60 ($180 strike + $8.60 option price = $188.60).

BRK-B would have to move another $13.90 per share from its current price of $174.70 for you to breakeven (if held to expiration).

With the $130 call, the breakeven is $177.75. That's a $10.85 per share advantage over buying the $180 call option.

What happens if at the June 2018 expiration period, the BRK-B shares finished the day at $188.60 per share?

If you were still holding the $180 calls, you wouldn't make any money at all. You would just breakeven.

Even though the stock did its part and rallied from $174.70 to $188.60, you wouldn't make any money. That $13.90 move up in the stock did nothing for you. Wasted time & effort.

But all the shareholders would make $13.90 per share in profits, and even the $130 call buyers would make a profit $10.85 per contract.

Still, it's entirely up to you. If you think saving yourself about $3,000 by buying the $180 call versus the $130 is right for you, even though you'll get less movement (47.21% Delta), then by all means go for it.

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In order to use the DITM strategy properly, you want to be as close to a point-for-point movement with the stock (high Delta), and you want your breakeven to be as close to the current stock price as possible .

For us, the DITM strategy is tried and true. And we stick with the 90% Deltas.

Show Me The Profits! (And Returns)

By now you've seen that by buying a DITM call option, you can literally save thousands of dollars (compared to buying the stock) while getting almost point-for-point movement with the stock (high Deltas).

But what about the return on investment (ROI)?

I mentioned that we can triple our returns. Let's see how that works.

As you look at the table of various price points, you can see the dollar gain/ losses alongside the percentage gains/losses for both the stock and the $130 call option.

On the downside, we will clearly save thousands of dollars if Buffett goes out of business. Another advantage for buying options is that you can never lose more than what the option costs you. Even if it's a total 100% loss, it will still be less in actual dollars than if you bought the stock.

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On the upside, once we get past the call option's breakeven price ($177.75), the returns will be more than triple the stock's at every price point, while the dollar gains of both the stock and call option are almost identical.

Triple the returns for a third of the cost? Yes please!

Are you seeing the value of the DITM play?

You have to understand how powerful this strategy is when combined with

piggybacking the greatest investor of all time.

Not only will you be getting a stake in all of Warren Buffett's investments, but

you'd be doing it at a 70% discount while reaping triple the returns.

This literally could be the Holy Grail of investing.

What Happens At Expiration?

Now that we've purchased our June 2018 $130 call options for $47.75 per contract (example only!), essentially giving us a 70% discount off the retail stock price, what do we do?

Nothing!

You hold the call option just as you would the stock. But just know, if you ever want to get out of the option trade, you can do so at any time before expiration. See choice #2 below.

If you believe Berkshire Hathaway is a long-term hold for you, then you let it play out until June 2018 rolls around.

You can pick any expiration date you choose, but since this should be a long-term hold, you want to focus on expiration dates at least nine months out.

Expiration dates can go out as far as three years into the future. It's very easy to check within an option chain to see which expiration dates are listed.

But, when choosing your desired expiration date, you must remember to try to get your breakeven as close to the current stock price as possible.

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Play around with various long-term expiration dates for DITM call options to see which ones give you the best breakeven prices.

So, once the expiration date comes, you have three choices:

1. Depending on where the stock is trading, you can opt to exercise the call option and pay for the balance at that time ($13,000). The cash will be deducted from your account by your broker and they will deposit 100 shares (or however many call options you bought) into your account. You are now the proud owner of BRK-B shares.

This method is only profitable at the time if BRK-B is trading above your breakeven price of $177.75 per share. You can still opt to exercise the call options even if the stock is below your breakeven. You'll just be sitting with a paper loss for the time being. If the stock goes back above your breakeven, then you'll be in the black!

2. You can outright sell the call option into the open market for its going rate. This will produce a profit or loss, depending on where the stock is trading at the time. You will not be required to pay the $13,000 balance as you will have liquidated the call option by selling it back into the marketplace.

This is exactly the same, and just as simple as when you sell a stock that you've previously bought. Option contracts work the same way - you buy it at one price and sell it at another price. Once done, the trade is over. And as mentioned above, you can sell the call at any time before expiration as well.

3. Lastly, if you would rather not exercise the call option, you can opt to "roll" the trade and buy another long-term call option. This does not require any payment of the $13,000.

At the beginning of this report I told you I would show you a way where you would not have to pay the balance of the lay-away plan.

This is actually a preferable method for most people as they would not need to come up with the extra cash to pay the balance .

As mentioned in Choice #3 above, when "rolling" a trade, you would sell the $130 call option back to the market at the current rate (netting a profit or loss), and then

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re-buy a new DITM call option (at whatever strike you choose) that lasts another year or two in duration.

There will always be a market for your call options, so you never have to worry about being stuck with it or unable to sell it back to the marketplace.

This method serves three purposes:

1. It keeps a large chunk of your cash intact in your account

2. It keeps you in the game for another year or two.

3. You could theoretically continue to roll your options for many, many years into the future and never have to pay the final installment.

It's amazing! I personally never buy stock anymore. I always buy DITM call options.

In fact, once I figured this strategy out, I sold off the long stock shares I held in my account and replaced them all with DITM call options. You could do the same.

Are There Risks?

As with any investment, of course there are risks.

But, we pretty much already know what they are - that the stock can drop below your cost-basis.

Isn't that the risk you take with any bullish investment? Absolutely.

So you need to manage that risk as you would with any other trade. Most people base this decision on a tactical level for the stock.

Do you have a stop-loss point? How do you determine that? Is it based on the charts? On the fundamentals? Is it a mental stop? This is something that only you can decide on how to manage.

My job is not to tell you how to manage your stock positions as far as risk-management goes. My job is to show you how to use options instead of buying the stock.

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But as far as risk goes with the call option itself, there are no inherent problems because you're using a call option instead of the stock.

You're actually in a much better position, as your actual dollar downside has been cut by more than 70%. So you're doing better right off the bat.

Another drawback that some may bring up, which is actually not a risk, is that as a call option holder, you do not get any voting rights nor do you receive any dividends. Those two attributes are for shareholders only.

But, as Warren Buffett has noted, he does not like to pay out dividends for Berkshire Hathaway stock, so you're off the hook there.9

And if you want to make the trek to Omaha, Nebraska once a year to the annual shareholder's meeting (which I hear is an incredibly amazing event), then just buy yourself one share of BRK-B for $174.70, and you'll have all the same rights as someone who holds 1,000 shares. Ok? Cool.

How Do I Get Started?

Very easy.

If you already have an account with a stockbroker, you're practically there.

All you'll need to do is tell them you want to buy call options and they will have you fill out the appropriate paperwork.

You may already be approved for options trading and not even know it. Plus, you can even do it in your IRA if you wish.

Obviously, you'll need to have enough cash and securities already in your account to cover at least the cost of the option, which always has to be paid for upfront and in full at the beginning of the trade.

If you were to execute our hypothetical trade, you would need at least $4,775 in your account ready to be deployed.

9 http://fortune.com/2017/05/06/warren-buffett-berkshire-hathaway-stock-dividend/

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And if you were to exercise the call options at expiration time, you would need the other $13,000 in cash to pay off the rest of the trade.

As far as figuring out how to execute the option trades - most broker's software these days are very easy to work and understand. Call you broker ahead of time if you need a walk-through.

In Summary

We've come to the end of the line for this report.

Let's summarize what we've learned :

1. We can buy a DITM call option as a surrogate to buying the stock.

2. We can save thousands of dollars and obtain triple the returns.

3. We can get almost point-for-point movement with the stock by picking 90%Delta strike prices.

4. Why buy stocks anymore when DITM call options can do the same, but better.

5. No dividends are received and no voting rights are given to option holders.Who cares! Use the money you saved and spread it around to other investments.

6. You can pick other strike prices and/or expiration dates if you choose, but thebest course of action is buying long-dated DITM calls with 90% Deltas.

7. Why aren't you calling your broker right now and buying DITM calls????

Thank you for reading this report.

Although I tried to be very detailed on the ins-and-outs of this strategy, in no way is it exhaustive on the subject. Please consult with your financial advisor before getting involved.

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Are you ready for the chance at collecting $300 to $6,000 in instant income every month? For more information, please check out my research service, instant Income Alert, here.

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Update August 5, 2018

The first version of this report was published using prices as of July 31, 2017, and turned out to be a great success.

At that time, BRK-B was trading at $174.70 per share.

The example in the report used the June 2018 $130 strike DITM call option which traded for a price $47.75 per contract.

At the close of business on expiration day June 15, 2018, BRK-B was trading for $191.76 per share.

To compare results between the stock purchase and DITM purchase, here are the details:

100 shares purchased = $17.06 per share gain ($191.76 - $174.70) and a 9.8% ROI ($17.06/$174.70).

DITM call option purchase = $14.01 per contract gain ($61.76 - $47.75) and a 29.3% ROI ($14.01/$47.75).

In order to figure out how much the $130 DITM call option was worth on expiration day, you must subtract the $130 strike from BRK-B's closing price. $191.76 - $130 = $61.76 per contract.

$61.76 - $47.75 = $14.01 (DITM gain).

$14.01/$47.75 = 29.3% ROI.

The DITM trade concluded just as the report said it would - almost identical dollar gains as the stock trade, with triple the ROI.

In addition to those results, the DITM trade had over three times less maximum risk at play ($4,775 vs $14,710).

There's no denying that the DITM play can be superior to a straight-up stock purchase.

At expiration, there were three choices for the DITM option holder (as explained in the original report):

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1. Sell the call option into the open market and lock in the gains. This actionwould end the trade completely.

2. Exercise the call option and take ownership of the stock. Final "balloon"payment would be made to cover the cost of the shares.

3. "Roll" the trade into a new DITM call option.

Choice #3 is the focus of this updated report.

In order to extend the trade into the future, the next DITM trade example would expire on March 15, 2019.

Remember, this is an example only!

Since time has passed since the June 2018 options expired, we will pick up the trade using current prices.

With BRK-B closing at $200.24 per share on August 3, 2018, what would be the ideal DITM trade?

At this point, we'd key on a one-year expiration date - June 2019.

Although it's ideal to stick with those longer-term trades, unfortunately, the June 2019 expiration month doesn't offer the best combination of strike prices and Deltas.

For that reason, the March 2019 expiration would be used instead.

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Courtesy Schwab.com

In the March 2019 option chain above, the choice would be the $150 call option at a fair value price of $53.75 per contract (splitting the bid/ask).

That choice holds a Delta of 90.3%, which meets our requirements.

The $150 strike puts it roughly $50 below the current stock price of $200.24.

Buying 100 shares of BRK-B at current prices would cost $20,024.

Buying the DITM $150 call option would cost $5,375 ($53.75 per contract x $100 option multiplier).

Similar to the prior trade, we're getting a stake in the new trade for $14,649 less than it would cost to buy the shares outright.

That's a 73% savings, which at the same time reduces the maximum risk in the trade by 73%.

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The break-even price for the DITM would be $203.75 per share ($150 strike + $53.75 per contract = $203.75).

As long as BRK-B is above $203.75 at expiration in March 2019 - the trade will be profitable.

Although buying the stock has a cost-basis and break-even of $200.24 per share (which is $3.51 per share below the DITM break-even), you can't complain about the ultimate benefits of buying the DITM instead.

And for example sake, let's say BRK-B ends up at $230 per share at March 2019 expiration.

Stock results = $29.76 per share gain ($230 - $200.24) with a 14.9% ROI ($29.76/$200.24)

DITM results = $26.25 per contract gain ($80 - $53.75) with a 48.9% ROI ($26.25/$53.75).

That's nearly the same dollar gain as the stock, but once again, more than three times the ROI.

Clearly, using the DITM strategy is preferable to the straight stock purchase.

That's all!

I hope you find this update useful, and let's see how it plays out again come March 15, 2019.

Update July 1, 2019

Let's see how our second roll-out of the trade fared.

We used the March 15, 2019 DITM $150 call options to remain in the trade.

The buy-in cost was $53.75 per contract, which was an outlay of $5,375.

At that time on August 3, 2018, BRK-B stock was trading for $200.24 per share.

On expiration day March 15, 2019, BRK-B closed at $204.31.

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From August 3, 2018 to March 15, 2019, BRK-B gained $4.07 per share (not much action!), giving the stock holders a gain of $407 on their 100 share lot and an ROI of 2% ($4.07/$200.24).

The March 15, 2019 $150 DITM call option ended with a value of $54.31 per contract ($204.31 - $150 strike), which gave the call option holders a small gain of $.56 per contract ($54.31 - $53.75), which equates to a dollar gain of $56 per each contract and an ROI of 1%.

With such a small move in the stock, neither the share purchase nor the DITM call option purchase made much headway. The returns were still positive.

Although the gains were small, one of the biggest benefits to remember about buying the DITM call option is the massive amount of less downside risk.

The 100-share purchase cost $20,024 on August 3, 2018 while the DITM call option cost $5,375, a savings of $14,649. That represents a reduction of cost and risk of 72%.

You can sleep better at night knowing that the risk is much, much smaller with the call option purchase.

Moving forward to the next roll-out:

BRK-B stock closed at $214.62 on July 1, 2019.

The best option to look at is the June 19, 2020 $165 DITM call option for a purchase price of $55.20 per contract (hypothetical trade!). The cash outlay would be $5,520.

With a Delta of just over 90%, the $165 call is the best option (option chain not shown).

This would put the break-even price at $220.20 per share ($165 strike + $55.20 per contract), making it the best choice for price and Delta attributes.

With the stock purchase costing $21,462, there would be a savings of $15,942 with the call option. This represents a 74% reduction in cost and risk.

That's all for this year.

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This will be the last update given for this report. I'm sure tallying the results next year will be a breeze at this point.

Once again, thank you for your purchase of this report and best wishes on a successful journey.

Regards,

Lee Lowell

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