Back in late January when BRK/B broke its 200 day moving average for the first time since 2012, we put on a near term bearish bet that the stock would see further weakness. We took the trade off for more than a double a short time later, detailed in the February 4th post:
BRK/B has promptly moved lower since our entry on our put spread position last week. Since the stock has now become quite oversold (with its lowest RSI reading in more than a year), and our put spread position a quick double, we’ll take the position off today. If BRK/B works its way back up to the 200 day moving average in the coming weeks, we might look to fade the strength again up there.
Action: BRK/B ($108.76) Sold to close the Mar 110/100 Put Spread at $2.75 for a $1.45 gain
Since then, BRK/B has rallied with the broader market. However, the stock did fail (at least for now) where we would expect, right around the 200 day moving average in the 114.50-115 area. That gives credence to that level as important resistance in the near term.
With today’s major reversal, we like the idea of playing for a move back down to retest those prior lows from early February over the next few weeks but likely at a less dramatic pace that it did in late Jan/early Feb.
Trade: BRK.B ($114.37) Bought March / June 110 put calendar for $1.60
-Sold Mar 110 put at .60
-Bought June 110 put for 2.20
Break-Even on Mar expiration:
-Profits are maximized at 110 on March expiration. Slight moves above and below that strike are also profitable with big moves higher or lower putting the structure at risk of losses on expiration.
-Max risk is $1.60
Trade Rationale: This is a bearish structure that looks to take some premium risk off by selling the earnings month options. Berkshire is not typically a big earnings mover and this structure has that in mind by playing for a move back to recent lows over some time, not just on the event. (although that would be nice too!)