To The Moon

“Be fearful when others are greedy, and greedy when others are fearful.” Warren Buffett’s timeless investment mantra has proven true once again. Last week, during a three-day sharp decline in the U.S. stock market, Buffett’s Berkshire Hathaway seized the opportunity to acquire shares in multiple companies, investing a total of over $560 million.

Buffett’s Latest Moves

According to regulatory filings, Berkshire Hathaway increased its holdings in the following companies during last week’s Tuesday to Thursday trading sessions:

• Occidental Petroleum (OXY): Added 8.9 million shares worth approximately $405 million.

• Sirius XM: Added 5 million shares worth approximately $113 million.

• VeriSign: Added 234,000 shares worth approximately $45 million.

These companies have faced significant challenges recently. For example, Occidental Petroleum’s stock has dropped over 10% this month and is down 24% year-to-date. Despite these setbacks, Buffett remains optimistic about the company’s long-term prospects, although he has ruled out the possibility of a full acquisition.

Sirius XM has seen even worse performance, with its stock falling 23% this month and a staggering 62% year-to-date. Buffett’s $113 million investment exemplifies contrarian investing, betting on a potential rebound.

Additionally, Berkshire Hathaway increased its stake in VeriSign, an internet infrastructure provider. VeriSign’s stock is down 6% this year, significantly underperforming the tech sector. However, Buffett, who first invested in VeriSign in 2013, has consistently held onto his shares, signaling his enduring confidence in the company’s long-term value.

Tracking Buffett’s Investments with Bull Call Spreads

For retail investors, directly purchasing these stocks may require significant capital or involve risks beyond their comfort levels. However, bull call spreads offer a cost-effective way to participate in potential upside while managing risk.

A bull call spread involves:

1. Buying a call option at a lower strike price to gain the right to profit from the stock’s future price increase.

2. Selling a call option at a higher strike price to offset part of the cost and cap the potential profit.

Example Strategy:
If you are bullish on Occidental Petroleum, you could construct the following strategy:

• Buy a call option expiring on January 31, with a $48 strike price.

  

• Sell a call option expiring on January 31, with a $55 strike price.

If Occidental Petroleum’s stock rises above $55, the strategy will achieve maximum profit. Conversely, if the stock price does not rise, the maximum loss is limited to the net premium paid.

Advantages of Bull Call Spreads

In a volatile market, bull call spreads offer several advantages:

• Lower Capital Requirement: Requires less capital compared to directly purchasing shares.

• Defined Risk and Reward: The maximum loss is the net premium paid, while the maximum profit is the difference between the two strike prices minus the premium.

• Reduced Sensitivity to Volatility: By combining buying and selling options, the strategy is less affected by changes in implied volatility.

Conclusion

Buffett’s recent investments serve as a reminder to seize opportunities during market downturns while maintaining a long-term perspective. For retail investors, leveraging bull call spreads offers a practical, low-cost way to follow Buffett’s moves while managing risks effectively.

This holiday season, take inspiration from Buffett’s contrarian mindset and use smart strategies to enhance your portfolio.