Message Font: Serif | Sans-Serif

No. of Recommendations: 3
(how much worse the ending break even price is buying calls today versus buying stock today) /
(the amount lower the cash cost is today buying calls instead of stock) * 365 / (days to expiry).

Unless I made a typo, that's
...
Our calculation methods may differ.

Yes, a little bit. You put the option price on both top and bottom, but I only have it on one. My formula is written differently, but that's what it comes to. I reasoned it from something you said a long time ago, as the price you are paying for the time value, annualized to a rate.

Your formula above shows a slightly higher rate than mine, but they're close.
Probably doesn't matter very much, since we're looking at all the DITM strikes to see which is the best one (which depends on what criteria you deem is "best"), just as long as you are consistent.

Oh, darn. I just spent an hour reviewing and comparing the formulas....and proved to myself that I did it wrong. I guess that demonstrates the problem with growing a spreadsheet over time. Like computer programs, after a certain amount of adding more and more stuff, you need to just throw it away and rewrite from scratch. ::sigh::
Doesn't matter if it's close. Wrong is wrong, even if it comes out close to right.

It is as simple as "extra_cost / borrow_amnt"
Where extra_cost = the time_value = (strike + option_cost - stockprice)
and borrow_amnt = (stockprice - option_cost)
Where option_cost = (.25*bid + .75*ask)
Then annualized.

As far as the OP in this thread, I was just looking to how much of an effect the recent volatility had on the relative option prices. I agree the effective rate around 4% isn't a very good borrow rate. Heck I just refinanced our house at a lower rate.

But my interest in the BRK DITM calls specifically is not so much as a borrow, as it is to put on some leverage in my BRK position when BRK's P/B drops below 1.35, by selling some BRK stock and buying calls.