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Berkshire Hathaway Bear Bets on a Reversal in Class 'B' Shares

Speculative trader looks for a sharp decline by this well-known conglomerate

by 6/28/2010 2:45:00 PM
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Class "B" shares of Berkshire Hathaway Inc. (BRKB) have pulled back roughly 1% today, as the stock appears to be stalling once again near $82-$83 per share. This region marked the stock's March 2010 highs, and a rejection for BRKB here could create a bearish technical formation called a double top for the security. Should such a pattern take hold, the equity could be in danger of retesting its near-term low of $70 per share in short order.

Weekly chart of BRKB since January 2010 with 10-week and 20-week moving averages

Whether due to speculation on the stock's short-term direction, or another more subtle reason, BRKB's options have been quite popular today. So far, call volume has more than doubled the stock's daily average, with some 3,946 contracts changing hands. Meanwhile, put volume has spiked to nearly five times BRKB's daily average, with approximately 9,000 contracts crossing the tape. Overall, the most active strike has been the August 80 put, where some 5,600 contracts have traded.

Digging through BRKB's put volume at the August 80 strike, I ran across a block of 500 contracts which traded on the American Stock Exchange (AMEX) for the ask price of $2.85, or $285 per contract. This block was marked "spread." After a bit of digging, I found the other leg of this spread on the August 70 put, where 500 contracts traded for the bid price of $0.73, or $73 per contract. Given this data, we could be looking at the initiation of a vertical put spread, or a debit spread, on Berkshire Hathaway Class "B" shares.

BRKB option volume details

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