Berkshire Hathaway’s Unusual Options Activity Screams Bull Call Debit Spread

Happy Thursday, folks. 

To my surprise, Wednesday's options trading included a rare appearance from Warren Buffett's holding company, Berkshire Hathaway (BRK.B).

How rare are BRK.B options traded? 

Its 30-day average volume is 16,740. Based on its Wednesday closing price, that’s $6.2 million. By comparison, Tesla’s (TSLA) average dollar volume for options is $422.1 million, 68x Berkshire’s. Only the holding company’s market cap is 23% greater than the EV maker’s. My guess is Berkshire doesn’t provide enough daily price movements to entice option traders. 

I’m a big fan of Warren Buffett’s, so when I saw these two unusually active call options from yesterday’s trading, I just had to write about them. 

Admittedly, I’m a babe in the woods in the world of options trading. However, that doesn’t mean I can’t make an observation or two about what I see.

And what I saw yesterday screamed bull call debit spread. Here’s why. 

What Is a Bull Call Debit Spread?

The definition, according to Barchart.com:

“A Bull Call debit spread is a long call options spread strategy where you expect the underlying security to increase in value. Within the same expiration, buy a call and sell a higher strike call,” Barchart.com states. 

“Risk is limited to the debit or premium paid (Max Loss), which is the difference between what you paid for the long call and short call. Profit is limited to the difference in strike values minus the debit (Max Profit). The bull call strategy succeeds if the underlying security price is above the higher or sold strike at expiration.”

Let’s look at the details of the two calls from yesterday’s training, and then we’ll get into the strategy itself. 

June 20/2025 $410: 512 days to expiration, $20.00 bid price, delta 0.49519, closing price $376.59, Vol/OI 49.71       

June 20/2025 $270 - 512 days to expiration, $131.50 ask price, delta 0.91451, closing price $376.59, Vol/OI 21.06

The two options had the 2nd and 15th-largest Vol/OI ratios in Wednesday trading. I don’t follow BRK.B options closely, but my guess is this doesn’t happen very often. 

The bull call debit spread here would entail buying the $270 strike for $131.50 (49% down payment) and selling the $410 strike for $20.00 in premium (annualized yield of 3.8%).

The Two Calls as Separate Trades

Selling the $410 call is a bearish bet. You expect the share price to fail to hit $410 by June 2025. Your breakeven on the trade is $430, based on $20 in premium plus $410 for the shares, should you have to sell them.

The thing about selling calls and puts is that your losses are unlimited. For example, if BRK.B shares are $500 at expiration, you’re out $70 a contract or $700. The higher the share price goes, the worse it gets. 

The 1-year Treasury bill yields approximately 4.82%, which means your 3.8% annualized yield is less than that with unlimited downside. This is not a bet one should make.

Buying the $270 call is a bullish bet. You expect the share price to rise above $401.50, your breakeven ($270.00 plus $131.50). However, unlike the call you sold, you can buy the shares at $270. You’re not obligated to do so. The worst case is you’re out $13,150.

What are the odds you will lose that much? Low.

In 2023, Berkshire stock gained 15.5%, 850 basis points less than the S&P 500. Over the past decade, Berkshire’s shares have achieved annual gains of 20% on four occasions. Let’s assume you’ve got a 50/50 shot of its shares increasing by 25% over 17 months. At current prices, that gets the share price to $470.74, a gain of 17% or 12% annualized. 

Over the past decade, Berkshire’s had one down year, in 2015, when it lost 12.5%. Over the same years, the index had two down years -- 2018 and 2022 -- when it lost 4.4% and 18.1%, respectively, including dividends.

The question to ask yourself is whether a 12% upside is worth tying up your deposit for 17 months. 

This is why and where the bull call debit spread comes into play.

The Winning Bet

To calculate the profit and loss on this particular bet, you start with your net cost of the two calls, which is $111.50 ($131.50 less $20) or $11,150. The maximum profit would be $128.50 per share ($410 strike price less $270 strike price less net cost of $11.50). 

If the share price at expiration is at or above $410, you make $128.50 per share. Your maximum loss is $111.50 per share. This happens when both options expire worthless.

The breakeven share price is $381.50 ($270 strike plus $111.50). Based on Wednesday’s closing price of $376.59, BRK.B needs only to increase 1.3% in the next 17 months for you to be at or in the money. 

Somebody knew what they were doing. 

Between 3 p.m. and 4 p.m. yesterday, two multi-leg trades were made for 1,000 calls each. One at 3:23 and another at 3:52. These two trades represented one-third of the volume on the day for the $270 and $410 strikes. The ask prices on the $270s were $130.90 and $130.60. That’s nearly $26.2 million invested for the right to buy 200,000 BRK.B shares.

It could be Buffett himself. 

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