Warren Buffett Made $1.2 Billion On Financial Weapons Of Mass Destruction
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Berkshire Hathaway's Q1 earnings are out. The company run by Warren Buffett earned $3.78 billion or $2,302 per share, up from $2.66 billion or $1,615 per share a year ago.
One detail from the Berkshire's filings we're always interested in is the value of his long-term derivative bets on the global stock markets. In case you forgot, Berkshire had sold put options on the S&P 500, FTSE 100, Euro Stoxx 50, and the Nikkei 225.
Berkshire collected premiums when it sold these options. Because they are put options, Berkshire is obligated to pay the option buyer should the indices fall below the exercise price. It's important to note that these are European style options, which means they can only be exercised at maturity. As a general rule, the value of these positions increase when stocks go up and vice versa.
This bet was controversial because in his 2002 letter to Berkshire Hathaway shareholders, Buffett dubbed derivative securities as "financial weapons of mass destruction."
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