Lehman Brothers Maybe Sold Warren Buffett a Rainbow

If you are like me, you will enjoy the heck out of Dan McCrum's FT Alphaville series (part 1, part 2, part 3) on Berkshire Hathaway's index put options, but I cannot guarantee that you are like me. I was mildly titillated by his use of the term "negative cross gamma," if that gives you an idea.

I also cannot guarantee that it contains the full truth about Buffett's derivatives. It is based on some papers written by Pablo Triana, a professor at Esade Business School, which speculate a bit about what might be going on with the put options that Berkshire wrote a few years ago. Berkshire's disclosure of those trades is notoriously wispy,1so the speculation is not conclusive. But it is interesting! Here (and here), for instance, is an effort to reverse-engineer exactly what the trades look like and to figure out their risk sensitivities, which, again, is not something that Berkshire Hathaway itself makes easy.2