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Jim, if you're reading this and feel like sharing a bit more detail on your strategy with the DITM calls on Berkshire, I'd be very grateful.

Well, that's a matter of "do as I say, not as I do".
What I say is that leverage is a bad idea as a rule. The #1 way that smart people go broke.

But, as for what I did:
- Wait till (a) the value proposition for Berkshire is very compelling,
and (b) the prevailing interest rates are low.
I did this in a big way mostly during that long flat spot when
Berkshire was mostly in the $120-125k range. (spring 2010 through spring 2012).
- At that moment, sell a bunch of your stock and buy some of the longest-dated lowest-strike call options available.
This gives you control of more shares.
- I suggest having half of them expire one year out, and half two years out.
Just before expiry of any given batch, roll them out to the lowest-strike options two years later.
Normally for Berkshire that means between mid November and mid January.
One set is always expiring on even numbered years, the other set on odd numbered years.
e.g., next month I can close my Jan 2015 options and buy Jan 2017 ones.
- If Berkshire's price has risen a lot, you'll find that the lowest strike
options available are not as low as what you had. Rolling the options will free up a lot of cash.
For example, I have some Jan 2015 $77.50 calls that I will roll to Jan 2017 at a substantially higher strike.
I bought those for $24.80 and they are now trading at about $62-64.
- If there aren't any very low strike call options available, you can still hit
the (low!) leverage target you want by selling fewer shares and buying fewer options.
It's the overall blend that determines your effective leverage level in most respects.

Even a little bit of leverage goes a very long way.
For example, let's say Berkshire will grow at 9% a year and the cost of the leverage from calls is 3%/year these days.
For example, 1.5x leverage turns 9%/year into 9*1.5-(1.5-1)*3% = 15%/year, which is pretty darned good.

The downsides are:
- You may take a nasty tax hit depending on the tax situation of your account. This is not a worry for me.
- The returns are irregular. Berkshire's share price can be flat for five years, so it takes patience.
- Any leverage will of course make your portfolio balance go up and down more. Not really important.
- It is possible that the stock price will be below the strike price when the options expire.
This means you lose all your money used to buy the options. However, this in quite unlikely. The things that mitigate this are:
- You picked a very low strike price.
- You have a three month window to roll the options. Pick a day that the price isn't that low, since such a sell-off is pribably transient.
- Pick a day near the beginning of that window, not near the end.
Even if the price is very low, at least the time value in the options is still non-zero.
- It's unlikely to happen two years in a row, which is why the expiry dates are on staggered years: it would hit only half your options.
- That's why you don't do this with your entire position. You still have your stock, and other investments.

The main thing to remember is that it's only leverage, not magic.
To the extent that using leverage can ever be smart, it happens only when you meet all of these rules:
- Pick an underlying security that is breathtakingly safe and very predictable in that it won't lose underlying value.
Don't start with the thing with the highest central expected return, but the most certain one.
- The leverage has to be free or very cheap. That's true for now.
- The leverage has to be uncallable. This is an absolute must, and why broker margin loans are a no-no.
Options meet this hurdle: you have the option, not the other guy.
- The leverage has to be long term or certainly renewable.
That doesn't quite apply for call options: they aren't quite certain to be renewable.
There might no be new LEAPS to replace yours. They could be banned.
Or Berkshire's could be discontinued. Or no deep in the money ones.
The interest rates might soar, making options too expensive.
These are not likely outcomes, but they are certainly possible, which would shorten
your time horizon to about two years rather than the 4-6 that would
make a more sensible expectation for the time for something like this to work out.
This "non definitely evergreen" problem is really the only thing that
really distinguishes this from being a prudent investment choice.

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