Why Warren Buffett Loves Options Premiums (And You Should Too)

Selling puts in volatile markets is one of the smartest ways to collect rich options premiums—and Warren Buffett has been doing it for decades.

Whenever markets shake, financial commentators love to trot out Warren Buffett’s greatest hits—“be fearful when others are greedy,” “only buy what you understand,” or the classic “never bet against America.” But they rarely discuss what he actually does when markets are in turmoil.

What does Buffett really do when there’s blood in the streets?

He sells put options—and collects options premiums like an insurance company collects policy payments.

Options Premiums as Insurance Premiums

Stock options were originally designed to act like insurance policies. That origin still defines how savvy traders use them—especially when it comes to put selling.

Think about it like this:

• A homeowner pays an insurance premium to protect against loss.

• An investor pays a put premium to protect against a falling stock.

• The insurance company or put seller collects the premium—often without ever needing to pay out.

In both cases, if no loss occurs, the premium received becomes profit. That’s the business model of companies like GEICO—incidentally, one of the cornerstones of Berkshire Hathaway’s success. And that’s exactly the model Buffett employs when selling puts.

Selling puts, like underwriting insurance, is a statistical game. And the options premiums you collect are your paycheck for taking smart, calculated risks.

Why Volatility Makes Options Premiums So Profitable

When markets are volatile, implied volatility rises. And when implied volatility rises, so do options premiums.

That’s because implied volatility is the market’s best guess at how much a stock might move. It doesn't know the direction—just the potential magnitude. And when fear is high, traders are willing to pay more to protect against downside moves, inflating put premiums.

As a seller, this is a golden opportunity. You can sell options at inflated prices, giving you higher premium income with the same or lower risk—because the probabilities are still in your favor.

Statistically:

• 68% of stock prices stay within one standard deviation of the mean.

• 95% stay within two standard deviations.

That means if you sell a put one standard deviation out-of-the-money, there’s a 68% chance it expires worthless. You keep the options premium. Rinse and repeat.

How Buffett Uses Options Premiums to His Advantage

Warren Buffett doesn’t just philosophize about market crashes—he profits from them.

Since 2004, Berkshire Hathaway has sold tens of billions of dollars in put options, collecting staggering amounts in options premiums. These were long-dated puts, sold during times of high volatility, when options premiums were elevated.

Why?

Because Buffett understands something most retail investors overlook:

Options premiums are most lucrative when volatility is high—and the odds are still on the seller’s side.

Buffett treats option selling like a business. Just as GEICO collects insurance premiums and rarely pays big claims, Berkshire sells puts and rarely has to buy the stock. Even when it does, it’s usually happy to—at a discount.

Takeaway: Trade Like an Insurance Company, Not a Gambler

Volatile markets are stressful—but they’re also full of opportunity. When you sell puts during times of high volatility, you’re trading like Buffett:

• You’re collecting inflated options premiums.

• You’re relying on probabilities—not predictions.

• And you’re acting like a business, not a gambler.

Just remember: not every put should be sold. Focus on high-quality stocks you wouldn’t mind owning, sell out-of-the-money puts when volatility is high, and manage your position sizes.

Buffett doesn’t time the market. He sells options premiums with the confidence that time and math are on his side.

You can too.

Frequently Asked Questions About Buffett-Style Premium Selling

Does Warren Buffett really sell options?

Yes. Berkshire Hathaway has famously sold long-dated index puts and used option premiums as a source of investable float, collecting billions upfront while agreeing to buy only at prices Buffett already liked.

How can a regular investor copy the approach?

Sell cash-secured puts on quality companies at strikes you would genuinely pay. Either the put expires and you keep the premium, or you buy the stock at your price with the premium as a discount.

Why did Buffett call derivatives dangerous, then sell options?

His warning was about leverage and opaque counterparty risk. His own option sales are fully backed by cash and quality assets, which is exactly the discipline that makes premium selling safe at any scale.

Keep Learning

📘 How to Sell a Covered Call

Buffett collects premiums - you can too, with the right process. Learn it in the Options Trading in 21 Days course.