Jul 22, 2026 · 50 min · 11 segments
Can one of the world's greatest long-term investors teach options traders a thing or two? To celebrate the 400th episode of Options Boot Camp, Mark Longo welcomes Dan Passarelli and special guest…
Russell RhoadsGuestMark LongoHost
Dan PassarelliHostAnd that year, 2002, he called derivatives, quote, financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.
And a lot of people have read into and perhaps misread this quote in a lot of different ways over the years.
And that statement was in response to a discussion around Berkshire Hathaway buying general reinsurance.
And one of the things that they inherited when they bought Jenry was an over-the-counter swaps book.
And this is the one that I love, and this is one that I use when I'm teaching over-the-counter derivatives.
Charlie and I can actually see a situation where both the long and the short positions could claim that they are profitable at different times based on the type of inputs.
And it is possible when you've got over-the-counter instruments like that to have people cover up losses, to have both sides of a trade say, hey, I've got gains right now.
And and he he finished up by stating that it really related to the over-the-counter book that they had inherited from General Reinsurance.
The catalyst, of course, was a lot of this OTC nonsense that firms like Lehman and others were just writing to everyone, not market them to market, having no clue their value and really not having any sense of how they could possibly hedge all that risk that they were entering into the market.
And lo and behold, if something should come along, some sort of exogenous shock, like let's say a subprime meltdown in the housing market, bam, all of a sudden, all those puts you've been writing come home to roost.
And that year, 2002, he called derivatives, quote, financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.
And a lot of people have read into and perhaps misread this quote in a lot of different ways over the years.
And that statement was in response to a discussion around Berkshire Hathaway buying general reinsurance.
And one of the things that they inherited when they bought Jenry was an over-the-counter swaps book.
And this is the one that I love, and this is one that I use when I'm teaching over-the-counter derivatives.
Charlie and I can actually see a situation where both the long and the short positions could claim that they are profitable at different times based on the type of inputs.
And it is possible when you've got over-the-counter instruments like that to have people cover up losses, to have both sides of a trade say, hey, I've got gains right now.
And and he he finished up by stating that it really related to the over-the-counter book that they had inherited from General Reinsurance.
The catalyst, of course, was a lot of this OTC nonsense that firms like Lehman and others were just writing to everyone, not market them to market, having no clue their value and really not having any sense of how they could possibly hedge all that risk that they were entering into the market.
And lo and behold, if something should come along, some sort of exogenous shock, like let's say a subprime meltdown in the housing market, bam, all of a sudden, all those puts you've been writing come home to roost.
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