Tag: Options

How Warren Buffett Uses Options

Oh yes, Buffett is a big user of these bad boys. This year I'm making it a priority to pick up options as a tool to complement long-term investing—how to enhance my returns and generate income. For anything investing, I always go back to the source of insights—Buffett's letters and Berkshire's AGM. This post will share how Buffett used options to lower Coca Cola's purchase ...

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Rules for dealing with options

The last thing I want is to disrupt my compounding process. Warren Buffet has many quotes but this one is the most apt for me when thinking about options “Never risk what you have and need for what we don't have and don't need.” Options will be a tool to complement long-term investing and not for speculating or trading. I set out some rules for myself in my earlier post here: Generating income ...

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Determinants of options price (2)

Our last post talked about how option value = intrinsic value + extrinsic value. Please here out the previous post on pricing an option and determinants of options price (1) if you haven't! It’s important to learn what grinds the gears of this tool to use it efficiently. Today, we are going to focus on extrinsic value. Also known as time value. Extrinsic value is determined by 2 factors: (1) Time ...

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