Berkshire Hathaway saw first-quarter profits tumble 64 per cent on the back of almost $2bn (£1bn, €1.3bn) of unrealised losses tied to derivatives positions. The key lesson from Berkshire’s travails is not so much that its boss Warren Buffett decided to play the derivatives game in earnest after all. The big issue, rather, is how he has chosen to play it – in one of the most historically dangerous ways.

What has the Nebraska-based guru done? He has sold options, or protection, in return for an upfront cash premium. Protection selling through derivatives is one of those strategies where you can be wiped out, as the liabilities can become huge if an “unexpected” (or rare) event materialises. Famous, and apparently unassailable, punters have fallen victim to option-selling (puts, in particular), suffering blow-up losses when markets turned awry.