Berkshire Sees the Double Edge Sword of Derivatives; You win some and lose some.

Though Buffet warned shareholders about derivatives, in 2002, it didn't stop him from playing the game in 2012. In a letter to shareholders he once again noted the danger: "Derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal," Warren Buffett wrote in 2002.

Berkshire estimated that its derivative contracts were worth $650 million at the end of the first quarter, well ahead of last year when they were worth $176 million.

The swing in the value of Berkshire's derivatives contributed to an overall gain on investments and derivatives of $580 million. A year ago, Berkshire recorded an $82 million loss on its investments and derivatives.

The true value of the derivatives won't be clear for at least several years, because they don't mature until at least a decade from now on average. But Berkshire is required to estimate their value every time the company reports earnings. Buffett has told investors he believes the contracts will ultimately be profitable because the premiums are being invested.