Berkshire Hathaway & Options Expiration Effect (BRK-B)

Berkshire Hathaway Inc. (NYSE: BRK-B) is not a stock that most investors have traditionally thought of as a stock which can be influenced by stock options. After all, stock option trading in the shares is still relatively new. With this week being an options expiration week it is interesting to see that options may play a role in how the trading of the stock is concerned.

Without just looking at the day to day trading, the open interest shows much insight into how much the options will matter. That will potentially be the case any month if the open interest remains the same as today or if it grows in the later-months.  We ran the open interest as of Wednesday’s close and if you use the “10,000 contracts translates to 1 million shares on a fully leveraged basis” calculations, then you can start to see where options trading could have a real impact on the actual stock trading in the B-shares.

The open interest for the August calls was 25,955 contracts versus 39,366 contracts for the puts.  On a fully leveraged basis that translates to 2.59 million shares worth of calls and 3.93 million shares worth of puts.

The open interest for the September calls was 54,448 contracts versus 78,334 contracts for the puts.  On a fully leveraged basis that translates to 5.44 million shares worth of calls and 7.83 million shares worth of puts.

The open interest for the December calls was 30,353 contracts versus 17,638 contracts for the puts.  On a fully leveraged basis that translates to 3.03 million shares worth of calls and 1.76 million shares worth of puts.

The open interest for the JAN-2011 calls was 30,984 contracts versus 40,656 contracts for the puts.  On a fully leveraged basis that translates to 3.09 million shares worth of calls and 4.06 million shares worth of puts.

The trailing 3-month average daily volume is 8,408,200 shares in the Berkshire-B shares.  Where the issue arises in trading volume of options versus average volume arises is that so far in August there have only been 3 days where there were more than 6 million shares.  The average volume is also skewed severely from June because of index additions.  If you just go back to July 20 for a full trading month and average out all of the trading volume, the real average trading volume of the more recent period is about 4.87 million shares.

Berkshire Hathaway suddenly finds itself in a position where options expiration dates may pin its shares closer to the closest strike prices.  Maybe Mr. Buffett can figure out a way to write an option on that.

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JON C. OGG