Buffett Restructures Derivatives Bet To Take On More Risk

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Update: As noted below, Warren Buffett had already admitted to restructuring his derivatives portfolio in this manner. But the NYP article isn’t as inonsequential as we’d originally (and mistakenly) suggested.

Buffett has restructured his S&P index put, so that the baseline is the current market price, rather than the price he toppish price he originally entered into the contract at. But at the same time, he’s taken on a lot more risk — expanding his bet. So while the odds of any individual bet paying off are now more in his favour, the downside is bigger by virtue of the expanded wager.

Original post: The NY Post is out with a sensational item this morning about how Warrn Bufett DOUBLED DOWN on his big S&P index derivatives bet.

Recall that somewhere near the top of the market, Buffett sold billion in S&P 500 index puts, a move that allowed Berkshire Hathaway (BRK) to raise more cash, but which will force the company to pay up if the index stays depressed (clearly, the timing could have been better).

Buffett has restructured this bet, so as to shorten the timeframe of it (giving him less time before the day of reckoning), while also reducing the amount by which the S&P 500 would have to rise to avoid losing money.

This is hardly doubling down, as the article states, and it’s not even news. We distinctly recall him telling this to CNBC during his big meeting a couple weeks ago.

There’s also a faux-dispute in the details. Since the article has been published, Buffett has told CNBC that the restructuring didn’t cost the company any cash, but then, that’s what the post says, as well — only it notes that due to its slightly worse credit, the company didn’t get quite as favourable news.

All in all, there’s no news here. Move along.

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