He may be. We may also only be seeing parts of the trade.
Fake news! I am not 5’6” (not that there is anything wrong with that).
And journalists reporting on 13Fs, none more fake.
FWIG you can't actually see what premium was paid on an option unless the buyer chooses to disclose that themselves.
Nor the strike or tenor. (Options are more thinly traded than stocks. This confidentiality is practical.)
They must be referring the the value of the shares the contracts represent?
There is enough bullish momentum that a trade of this size can actually be placed (of course in chunks).
Puts are calls and calls are puts [1]. On a certain level, all options of a given expiry and underlying are shadows of the same object.
Absolutely false.
Options theory typically starts with European non-dividend paying options for simplicity. PCP applies to American-style options on dividend-paying stocks, you just get a solution with pairs of inequalities defining bounds. That leads to similar arbitrage and conversion mechanics with similar implications for market participants.
To make the math easy, let’s assume it’s a PLTR 200 strike put expiring in February 2026. Each put is $20,000 notional so 10,000 puts would be $200M notional.
Feb PLTR 200Ps are trading for $3k or so each, so it would be $30M in premium for $200M notional with an in-the-money put.
If a market maker sells one 200P (52 delta) they are functionally long 52 shares, so they hedge by selling short 52 shares (or selling a call with 52 delta). If he has 10k contracts then the MM that sold the puts would be functionally long 520,000 shares and would need to short that many deltas to hedge.
Avg recent trading volume for PLTR is ~50M shares a day; 10,000 (50 delta) puts is roughly equal to 500,000 shares and be about 1% of a day’s trading volume.
Tl;dr: He’s holding 10k to 50k put contracts, depending on the moneyness and expiration date.
edit: smallmancontrov below pointed out that I wrote 'purchasing puts' was long, when I meant to write 'purchasing calls'
Glad to see someone say it. A lot of people have a hypothesis about the market, but fail to do the follow through to see if the market has already priced that in. The real aim should be to see when your model (mental or mathematical) prices things differently than the market.
In this case, it's actually quite reasonable to believe that the market has over priced the risk no matter how "sure" anyone is that these companies are over valued. It's entirely reasonable to pay for an option that you think reflects an unlikely scenario, but you also believe is mispriced notably by the market.
I looked into it and it's not that cheap - and feels like the market is already pricing in risk of a large correction.
But you can still make a lot of money if you time it right.
The relevant Greeks are delta, gamma and vega.
If your bet pays off, the price of the stock will decrease. Delta predicts how your option will increase in value with that; gamma if that relationship will accelerate or buffer. Vega, meanwhile, informs that the price suddenly crashing is volatility, which increases the value of your options.
Succinctly, if you are betting on a crash, options offer advantages. (And if the market, but not your company, gets bailed out, vega could put you middlingly in the black.)
Former options market maker here. We have insufficient data to conclude that.
I also happen to have experience unwinding correlation books after their originators shat the bed. Predicting a crisis is hard. Predicting correlations in a crisis for esoteric assets is almost impossible.
Burry wanted to bet on specific overvalued stocks. Not a general market crash. For that, puts are probably the best tool if the expectation is a sharp correction followed by, in all likelihood, a Trump put.
On what basis do you say this?
This risk can be hedged with futures and options.
Short and a call, yes. Short and a future, no. Either way, infinite losses isn’t an unavoidable downside when it comes to shorting. Stock-borrow and margin risks are.
Sometimes you just want simple leverage, which the puts can provide.
Leverage, margin risk and stock-borrow risk. (The last refers to the folks who lent you the shares recalling them inconveniently.)
Of course they did have a cheaper double no touch broken wing structure that would pay for their next mclaren.
> Scion bought roughly $187.6 million in puts on Nvidia and $912 million in puts on Palantir, according to Securities and Exchange Commission filings.
But 13F reports the market value of the underlying shares for options, not the premium paid for the options
All we know is at time of filing he has 10k NVDA puts and 50k PLTR puts. We don't know the strike price or the duration or how much he paid
So the claim "$187.6 million in puts on Nvidia" potentially means "Burry risked a total of $18,760 betting against Nvidia" in reality.
Except it's literally what determines how much money is at risk in the trade. If you buy puts the actual underlying asset value doesn't matter as much as the value of the option itself (which is based on several factors such as time, strike price, etc)
It is the most meaningful thing. It's the exact amount of money you are risking. It's the exact amount you lose if it doesn't strike. If I buy a put for $2, the most I can lose is $2. It's meaningful even with no other information.
13F notional value, on the other hand, is meaningless without more info.
How so?
If I buy TSLA puts at a $10 strike or a $500 strike they show up the exact same on the 13F as both have to be reported as if they are delta 1 when showing a share count.
One is a very meaningful bet and one is throwing money away.
PS. Burry infamously made several more bets after the "big short", bets that misfired. That is, his record is far from being 100% right.
By close though the market they may well all end higher. We seem to live in a meme economy.
To put another way, there's a lot of "potential energy" being built up in the markets right now. That doesn't necessarily mean they'll pop like a bubble - but there's really no precedent for them to continue rising.
If you've flipped heads three times in a row, you're right that I would look foolish saying the next one can't be heads. But at the same time you cannot keep flipping heads forever.
General handwavy statements like "there's a bubble" aren't worth paying attention to. Ones with specific timelines attached to it (like the one above, or the article we're commenting on), are worth listening to a bit more, but unless they have the funds to back it up (like Michael Burry has put down here), it's still hot air.
I’m not sure what timeline to place on that but there has to be a floor for how bad it can get for the regular man.
Shit is just expensive. Young people can’t buy houses, good jobs are drying up, and inflation isn’t stopping.
I don't know what the disconnect is with that chart and people's observations. Is that chart controlling for number of incomes and hours worked? If a household income increases by 20% because the members are working a combined 80% more hours that's not great. Category differences in inflation might be another factor. Sure TVs and other niceties are a lot cheaper, but essentials like housing and medical care eat up a huge portion of most budgets.
Also, most US households are homeowners, which means housing prices going up increases their (imputed) income.
> Is that chart controlling for number of incomes and hours worked?
Why should it? It's bad practice to control for random things - that gets you collider bias.
But see:
The disconnect is that CPI consistently significantly underestimates inflation as experienced by real people.
You may be thinking of Shadowstats, which is run by a crank who just takes the official numbers and adds a number he made up to them.
I don't know why cranks always think inflation is secretly higher. Deflation is a lot worse than inflation, so if you're a doomer, believing in deflation would be more effective.
The problem is that the error integrates over time, which IMHO is why graphs like that seem to suggest our standard of living is higher than ever... when a conversation with anyone at a local bus stop will tell you the exact opposite.
I don't think a guy at a bus stop represents the median household well. I'd rather have https://www.census.gov/programs-surveys/cps.html.
(Edit-misspelled Fed)
In practice, household sizes have gone down over time as more people live on their own, which means the income graph is lower than it otherwise would be.
https://fred.stlouisfed.org/graph/?g=cWvT
As for dual income families, they're mostly a good thing that happens when women can afford to pay for childcare. That is, that book The Two-Income Trap was mostly false. This is part of the topic of Claudia Goldin's economics Nobel, the other part being that the gender wage gap is caused by motherhood interrupting women's careers.
https://www.nobelprize.org/uploads/2023/12/goldin-lecture-sl...
https://en.wikipedia.org/wiki/Personal_consumption_expenditu...
Is there someone with a better record then?
It actually appears that the alternative harms aren't as bad; that is, recessions aren't caused by prior expansions and we don't get one by "deserving" them.
https://eml.berkeley.edu/~enakamura/papers/plucking.pdf
Hyperinflation is of course still not good, and it's hard to avoid a recession caused by a natural disaster or something.
Point is, for a 100% positive case rate, I have to tolerate a 22% false positive rate. What exactly is the complaint here? Was this line of logic meant to make people who make these predictions look stupid or foolish somehow? To me, it mostly fails to.
Historically I think the reality has been the opposite of that, economists have been extremely reluctant to make predictions of an oncoming recession. This was certainly true during the great recession when economists were denying that a recession was coming even after one had actually started. That is to say, economists could not even predict the present.
There are a few economists who are predictably gloomy ("permabears", I suppose Nouriel Roubini would qualify) and I guess now there is political pressure to predict a recession anytime the other political party is in power, but from my perspective, if mainstream economists are predicting a recession, that likely means the recession is almost over.
With that said, Burry is often credited for "Calling 18 of the past 2 recessions". Even a broken clock....
The powers that be have too much invested in the market continuing to move up, you are basically betting that Trump, a bunch of billionaires and the FED are going to let the market crash to curb inflation and income inequality. That feels like a bad bet to me.
By their very nature the markets can overwhelm any desire to "[not] let the market crash]"
Especially when the person in the White House is scared about losing the midterms.
The stock market isn't that important (though Trump does care about it). It's the bond market that everyone pays attention to when it stops working.
In a sense, stock market crashes are good for young people because you can buy stocks cheaper. In practice this isn't true because too many people are in debt and you get a balance sheet recession.
Some outlets then took this and wrote the story that Burry has a short bet of billions on NVIDA and Palentir.
His put's are most likely well out of the money so their delta is no where near 1 so his bet is far smaller than places are reporting just due to how the SEC requries funds to report their holdings on 13F filings.
This is an argument against a market wide short bet. The Fed could raise the market while Nvidia still loses its premium.
The larger risk is political proximity, particularly with Palantir.
I took the initiative to be the first person to WFH in my org, which I did as a pre-emptive quarantine as I was at risk of being infected: several of my spouse's colleagues subsequently got infected. Unfortunately, I didn't link my WFH circumstances that with investing in Zoom.
Powell's 4-year term ends January 31, 2026. Whether he is reconfirmed by the Senate for another term is an open question.
[1] https://www.congress.gov/crs-product/R48233
[2] https://en.wikipedia.org/wiki/Jerome_Powell#Federal_Reserve_...
Maybe it makes sense based on the dynamic of the Party needing to run through scapegoats? One could possibly see that Palantir is about to be thrown under the bus, but only connected insiders will know who its exact replacement will be? Personally I don't see signs of Palantir being close to the chopping block though.
I've googled "becky with the good hair" [1] and I still have no idea what that sentence means.
I split Becky into two: IBM is Vanilla Becky. Palantir is Becky with the good hair. But don't get it twisted, they are both Becky. Don't fall for Becky.
As far as I can see, shorting Thiel is shorting Israel at the moment. Don't do it while Trump is in Cabinet and pressuring Tel Aviv to pardon Bibi.
Availability heuristic [1].
Flat earthers and folks deep in their small-country national politics do the same thing, overestimating the causal weight of the thing they’re obsessing about to any effect.
The useful takeaway is to recognize when you do it in smaller doses. What’s the first explanation you tend to have a hunch for explaining phenomena which are too diverse to be reasonably explained by a single factor.
Normal people are opposed to those violent acts and may even get angry about them.
But the same people tend to completely ignore or outright support Hamas doing the exact same thing.
I didn't address supporting Hamas because it wouldn't have been a generous interpretation of your argument. Where have you seen Hamas support? I have only seen it when Palestinian support is equated to Hamas support to justify atrocities.
NVDA on the other hand ...
What are you going to really do about something that posts 40B+ in revenue every quarter? Okay, you can short it I suppose. You'd have to time it with the expected drop off in AI compute spend, which means if you have a history of being early (which Burry does), you will lose.
I met a traveller from an antique land, // Who said—“Two vast and trunkless legs of stone // Stand in the desert…
Everyone who tried to compete failed hard because no one has the money, and raw talent or ability to get that talent needed to beat Nvidia at the software game.
> This game is far from over
Do you think a company like AMD or Intel is going to make massive gains in taking market share away from Nvidia? Or do you think it will be another company? Or something else entirely?
These same people unironically believe that Gemini was trained with zero GPUs for any part of the process (including all experiments), and it was all done on TPUs. They cite this as evidence that CUDA/Nvidia is dead.
It's stupid, it's wrong, but it's what they claim.
I'm going to be a lot wealthier than the Nvidia bears.
And if you don't believe this, just take one look at TPU pricing (remember, Trillium is TPUv6) and tell me this is competitive with Nvidia/Oracle/any neocloud with a straight face.
To suggest Nvidia will have the game to themselves for another 10 years might turn out to be wrong, but it isn't naive. You are the naive one here.
No one is sitting around. I'd argue if there was more wafer supply you'd see amd/others undercutting nvidia...but it's hard to when supply is incredibly constrained.
Heuristics That Almost Always Work have a helpful hint right there in the name. They do work, and they do it almost every time. And depending on the topic that 99.99% may be even 100%, but we just can't reliably prove it. Stuff that works 99.99% of the time is very valuable and helps humans free resources and time for the less reliable or more severe problems. Or just for leisure. Personally, I invite author to go disprove every single idea on the internet and do it in careful and deep detail, let's see how long he would last without heuristics. :)
I like to think about it this way: Absent growth, had a private investor purchased the business at 486x earnings, it would have taken the investor 486 years to recoup the investment.
Only crazy-fast future growth could justify that multiple.
I estimate earnings/share would have to grow 30-fold within a foreseeable time frame, like 5-7 years, to justify the peak price per share.[a]
---
[a] Back-of-the-envelope math: 486x peak / 15x long-term average P/E = 32-fold increase to justify valuation. I rounded it to 30-fold.
You have to look at the cost structure now v what it should be in a "steady state" situation, perhaps 10 years out.
https://edition.cnn.com/2023/08/15/investing/michael-burry-s...
>Traders following the investments disclosed by Scion’s over the last 3 years (between May of 2020 and May 2023) would have made annualized returns of 56% according to an analysis by Sure Dividend
Seems like Scion Capital could have just disclosed winning trades, that they may or may not have made?
How many bad predictions does he need to make before people stop caring what he has to say?
tl;dr he's a perma bear.
I actually don't think he's wrong, but one thing I've learned is that it's not enough to recognize a bubble. Almost everyone sees the markets are, as they say, frothy. But you need to see if there's a needle nearby. Without that you're just trying to get lucky.
Puts especially are really hard because they expire. They limit your loss compared to shorts, but you need to time it perfectly.
Also, his returns aren’t really impressive compared to VTI, which has had an annualized return of 14.04% over the past 10 years according to Vanguard. That works out to 372% total returns in that period.
It’s easy to make money when even the broadest US index fund is up by that much.
A joke said of Trump, of whom it is much more fair, but still...
Could be overvalued, but it is not vaporware.
Real people have no need for high level financial concepts like that. The stock market should be for real trade, not incestuous exchanges between egregious executives.
This is a pretty huge assumption with no real reasoning. Some substance regarding _why_ “high level financial concepts” produce nothing of value would be useful
It's far more complicated than you make it sound.
Which is wrong.
He’s making calls that things should crash but somehow, here we are.
But Nvidia seems highly risky to bet against. Also a very high P/E ratio, but not too crazy. And the demand is extremely real and keeps growing.
Until the latest earnings, all the hyperscalers were basically telling us quarter after quarter that they were capacity constrained and backlogged largely due to AI workloads. And capacity generally translated to GPUs. Only now has MSFT reported being constrained on power, which might signal a shift.
But that doesn't mean lower demand, it just means folks lower down the totem pole can finally get their hands on GPUs. Large sovereign nations, including US and China, are jockeying over these things.
Even if this bubble pops, I still don't see demand going down. If you look honestly for indicators, there is tons of data showing rocketing usage which is translating into real productivity wins. In a capitalistic world, that dependency is going to be impossible to wean off of.
I also don't see any real competition on the horizon yet. I kinda understand NVDA's moat is more than just their chips, it's also the ecosystem. I don't claim to deeply understand this (as another comment points out: https://news.ycombinator.com/item?id=45826309), but there are other signs I see:
1. Huawei was forced to train their models on non-Nvidia hardware, and they couldn't get a single training run completed, AIUI due to showstopping bugs and other issues in the stack.
2. Anecdotally I hear AWS has been unsuccessfully trying to get customers to use Trainium. They all prefer Nvidia.
3. Google announced OpenAI would use TPUs on GCP and now is leasing Nvidia capacity from Coreweave to support the deal.
With everyone locked in a Red Queen's race to train the most powerful models ASAP, they can't afford any delays inevitably introduced by new platforms.
The real threat right now is that behind all the smiling partnership announcements, everyone is trying desperately to diversify away from this monopsony. They will eventually succeed, but doesn't seem it will happen anytime soon.
people need basic options education..
You need to time the crash. If you're off, it could still crash and you could spend more money sustaining the position than you'd make. Or you could end up getting margin called, not just by semi-impotent private investors as Michael Burry was, but by the platform you're trading on itself. "You've lost too much money so far based on the current valuation, so we're going to seize this option and you'll owe us the balance". Trading at high leverages with Daddy's money, people on /r/wallstreetbets sometimes get margin called and end up owing much, much more money than they put in.
Before putting any money in, make damn sure you're able to write at least a 101-level summary of the different types of trades.
I did this in February 2020, and then bet a modest amount on the proposition "People keep saying that COVID isn't going to be a big deal, and I think they're very wrong". I still managed to lose out because I didn't foresee the Federal Reserve bombing the market with freshly printed cash. I lost it all. But what I didn't do, is end up owing millions of dollars I don't have to the brokerage, because I stuck to buying put options rather than selling call options or shorting stocks outright.
Timing aside? To what extent the Federal Reserve would intervene in an NVDA price collapse is an open question, because at this point a collapse in AI investment would threaten the solvency of entirely unrelated financial institutions.
Fixed down side, upside is $100 per contract per dollar the stock is below the strike at expiry. You can also sell them before then, and price depends on time to expiry, volatility, and distance to the strike price. See Black-Scholes model for more info.
> If you're off, it could still crash and you could spend more money sustaining the position than you'd make.
And in Black Scholes this is called Theta Decay. In any form of short, there are maintenance costs, and maintenance costs roughly scale with the risk-free interest rate (usually assumed to be roughly the Federal Reserve's overnight lending rate)
Theta Decay is above-and-beyond the risk-free rate because you're also losing time-value. So you must always factor in the amount of time before a predicted crash: the longer it takes the more money you lose.
I think the idea is, as a put buyer (market taker), this has already been baked into the option premium. The only "maintenance cost" in the sense of a cost that adds to an open position is from interest on margin loans.
There would be a maintenance cost from rolling the position into a later expiry, but I think the impression is that this is a precise single bet.
EDIT: You're spot on about opening a position being a sort of cost too, due to missing out on risk-free returns. This is especially important for hedging. Less so for a directional bet.
If you want to minimize loss of time value, you buy 2 year LEAPs, and then as their 1-year approaches, you sell the LEAPs and roll them back into 2-year LEAPs. Theta rapidly changes as you grow closer to expiration.
No one should be buying and holding just one option. Anyone who understands Black Scholes will be selling/buying and exchanging options as time goes on.
-------
Buying puts is a bull-bet on Volatility and bear-trade on the underlying stock, while losing Theta (largely based on expectation date. Longer means less Theta decay).
Selling calls is a bear bet on volatility, bear bet on underlying while gaining Theta in value each day.
And then there are the many combination trades that are available.
In any case, I don't think any sophisticated trader does the strategy you are assuming here. The sophisticated strategies involve selling and renewing your options as time moves forward / and or the stock price changes (to keep Delta withing appropriate levels).
> Or you could end up getting margin called
Completely false
Buying puts is a short position and does not require any further maintenance costs
Yes, theta decay is a thing but stating you can get margin called or there is any level of maintenance required is completely wrong and shows a total lack of understanding of the very basics of options
“Markets can remain irrational longer than you can remain solvent.” ― John Maynard Keynes
Now, now. Palantir received social security from In-Q-Tel during its incubation. Alan Wade was the CIO of the CIA and had previously founded Chiliad with Christine Maxwell (sister of that Maxwell).
On the other hand, Karp knows Lutnick (who lived next to Epstein) from Haverford College. It's a small world. So with this administration bets against Palantir might be risky.
But "the most important software company in America"? Please, many here have said that it started out as a database search company (like Chiliad).
“I love the idea of getting a drone and having light fentanyl-laced urine spraying on analysts that tried to screw us,” he said during a talk in New York to promote his new book in February."
https://www.ft.com/content/64a2345e-3961-4d5d-ae04-82d933fa5...
This is a horrendously inefficient system. 90,000? 400,000? In a population of 16 million? The expense! The time! The sensitivity to data irregularities! The friction which the non-dissidents must feel! This is a worse imposition than an occupying army. How many of those 250,000 were actually conspiring against the state in a meaningfully threatening way? 1/10th? 1/100th? How many actual dissidents make it through the sieve, because the security service was unable to cross-reference suspicious entries on three pages in files occupying different filing cabinets in different buildings in the complex?
The US, despite its military might, rapidly hit a manpower limit in the occupation of Afghanistan & Iraq, and was largely unable to effectively fight a collection of counterinsurgencies and "sympathizers".
In the 2020's we have much greater capability to surveil. We have electronics tracking everything, we have phones that listen all the time, we have cameras at every streetcorner, data brokers know more about us than our diary does. But manually checking these things in untargeted surveillance would be almost impossible. It would take our entire population spying on ourselves.
Enter Palantir. Proposition: "We would like to explore if we could make this possible & efficient, using modern database & machine learning techniques. We will collect, categorize, transcribe and cross-reference all the data, of every type, we will generate suspicious activity reports autonomously, we will make follow-up trivial".
This was literally George Orwell's nightmare in 1984 - that looking back at the long history of repression and rebellion, the cycle of violence and freedom, of authority and abuse of authority, that perhaps at some point, eventually, technology gives so much power to the authority that it's simply impossible to overthrow them.
They think hard about how to collect and make use of, what most would describe as, grains of sand.
A common use case for their data is figuring out for a government who they should kill that week.
GPT-4 was released in early 2023. Back then AI maximalists were saying AGI is near. We're approaching early 2026 and we obviously aren't anywhere close to anything any reasonable person would consider AGI. But what do we have? "Agents" that are mostly useless. Image and video clip content generators that are pretty much only good for social media memes and spam. We do have better software development tools, but that's not a life changing advancement.
It seems like in order for all this speculation and all these massive build-outs to pay off we're going to need AI to redefine how we work and live within the next 3-5 years. Even if we AI development doubles or triples what it's been able to do in the last 3-5 years, I don't see this happening.
So, when this does not happen, when the AI hype does not live up to the promises, by a longshot, what will happen to the markets?
If any anthropic reps read this, I think you guys, while probably better than open AI and meta, possibly Google, are delusional and are more likely to destroy the world than create infinite human life.
Has it? I couldn't find the returns for his fund. Since you have them can you post them and highlight what about them are horrific?
- In May 2021, Scion disclosed it acquired put options on Tesla shares.
- In August 2023, it was reported Scion anticipated a stock market crash and acquired $1.6 billion worth of put options to bet against the ETFs that tracked the S&P 500 and the Nasdaq-100.
- Scion also was noted to have held a large put option against the iShares Semiconductor ETF.
However, nothing about any of those points indicate his performance has been horrific.
All that matters are his returns against his reference index. That's the only relevant measure.
EDIT I did manage to find his returns via chatgpt and the OP is correct that they haven't been great in some periods, but his last 5 year average is +85% which isn't bad, not great, but not bad.
He is also up about 10% over the past year, so not great and not terrible, he's mid as the kids say.
The news is essentially about making a bet, as the title suggests, with no real evidence or information on who will pull the money out or how it will happen. Just because the price is high doesn’t necessarily mean there will be an outflow. It’s more like gambling, based on speculation rather than solid facts.
You would expect that with low probability, highly leveraged bets, which shorts largely are. You are wrong most of the time and then make a giant pile of money when you are right. People definitely should understand that strategy though and not just follow him blindly into investments without the expectation that you will probably lose your money almost every time.
There are also other factors that affect Nvidia. Any move on Taiwan can collapse Nvidia's price down to zero. Hyperscalers can also shift orders over to AMD, Intel, ARM and Broadcom. This is inevitable, but you can't be too early with this.
Lastly. I don't know how technical Burry is. If you showed him LLM tech in 2017, would he have recognized it? There are things about this tech that he may not even recognize even if you showed it to him. You can literally show some people full generated video and they still wouldn't get how much compute it takes to do that.
Finally, the world is not just a giant Tulip bubble. There's actually trillions of dollars moving around every day and people innovate and consume. It's not just a giant Ponzi scheme waiting to collapse.
--
As for Palantir, as many have mentioned, I would not consider shorting Palantir until year three of this administration. Palantir may lose favoritism with the next administration. Maybe. As we witnessed with the MAG7 CEOs, these people are prepared to change their entire value set to win the business of those in power.
He's not shorting this time. He has put options. This is a "short position" i.e. one that behaves inversely to the stock price, but his downside is limited (at the expense that he pays the full downside up front, and can lose money even if the stock goes down, if it doesn't go down by enough).
TFA says the options are on "roughly 1 million NVDA shares worth $187 million", implying NVDA was around $187 at the time of acquisition. That more or less tracks with the September 26 close, and this was apparently disclosed in a September 30 filing. NVDA is currently above $200. Similarly, he would have options on PLTR bought when that was also somewhere around $182 (roughly matching the September 30 close); even with today's crash, the stock is hovering around $190 as I write this.
So depending on the duration of the options there's a pretty decent chance he's going to lose money, and depending on the strike price it might well be the entire premium. As far as I can tell, neither of these is disclosed in the filing.
AI is not the only way to address challenge that it aims to solve.
If everyone followed your advice no one would ever do anything, as we all begin somewhere, something that should OK.
Of course, don't do million dollar trades when you begin, but we shouldn't push back on people wanting to learn, feels very backwards compared to hacker ethos.
Leverage can be a fearful thing.
Totally! But also keep in mind this :)
https://www.explainxkcd.com/wiki/index.php/1570:_Engineer_Sy...
That, and because snarky answers get more imaginary internet points than helpful ones.
Since when is this a problem? For gods sake, let people fuck up and harm themselves if they're stupid enough to take the risks, or not.
I think it's fine to say "Remember, this is risky because of A, B and C, but here's how to do it anyways..." but straight up "If you have to ask, you shouldn't" seems so backwards and almost mean, especially when we talk about money which is mostly "easy come, easy go". Let the fool be parted with their money if that's what they want :)
https://www.investopedia.com/ask/answers/06/sellingoptions.a...
You either sell the stock short or buy puts.
A downward move could also see volatility go up significantly and increase the value of the options you are short, especially longer dated options.
is my understanding right?
I make a PUT option on a stock for a price. This price is usually lower than the current market price of the stock.
1.When I do that, the premium amount is to be paid by me when i make the PUT option or I get paid while making the PUT option.
2. Do I have to pay upfront money before hand, while making the PUT option?
3. Is there a deadline for my PUT option. For example, if it doesn't happen, what form of loss do I experience?
If you sell a PUT, your exposure is much greater; you're the one who has to pay up if the option ends up in the money.
The deadline is the date of the option.
If you do lose money, it's a capital loss (tax benefit) and vice versa for capital gains.
A put option represents a belief that the price will fall, which makes "right to sell the stock" valuable. Similarly, a call option represents a belief that the price will rise. Both can be bought and sold; you do not "make" them but rather trade in them, just as you would in stock. But the relationship between the stock price and the result from an option is not linear; selling a put and buying a call are both nominally "long" the stock, but are not equivalent.[0]
When you buy an option, you are always immediately out for the cost of the option itself (the "premium"). This is separate from the strike price. It's the market's assessment of how much your "right to sell later" is worth, in itself. By doing this, you are speculating that you can recover that money later, based on how the stock performs. (Depending on your strategy, this can involve buying or short-selling the "underlying" stock, as well as other options.)
So if you buy a put, you pay money (the premium) up front, and you potentially just lose that money completely. Sane options strategies take your entire portfolio into account, and use options to hedge the risk profile of the rest of the profile (rather than trying to use the rest of the profile to justify taking on risk using options).
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Some details, and further exploration.
Options represent essentially zero-sum speculation on top of the actual price movement. For example, holding everything else constant, a call option increases in value as the price of the underlying increases (the right to buy stock at a fixed price becomes worth more, when the stock is worth more). When a company does well, everyone who holds the actual stock shares in the company's good fortune; but the profit of call holders comes at the expense of those who sold (or "wrote") those calls.
The option is priced according to market expectations of risk (how likely is it that the stock's price will fall below the chosen mark?), and according to duration (the longer you reserve the right to exercise the option, the more likely it is that you'll get a profitable opportunity; therefore, the more valuable and thus expensive the option is). For long-term options (especially now that interest rates are non-trivial) there's a second meaningful duration factor: buying an option comes with the opportunity cost of not holding cash (or treasury bonds) for that period, and that also has to be priced in.
"American" options give you the right to exercise at any point before the deadline; "European" options only allow you to exercise at the deadline. This is also priced in; having more flexibility is worth more.
If you have chosen well, the market price for the stock goes down by a lot. This allows you to profit when you exercise the option.
If you have chosen poorly, you never get the opportunity to profit. Your options "expire worthless"; an option to sell at a point that has already passed has no value. You have been left holding the bag.
In between, you might exercise in a way that recovers only part of the premium you paid.
Much riskier is to sell options against securities you don't hold. (You will likely be legally barred from attempting this at all, and even wealthy experienced traders will be required to hold some percentage of the security value that their options represent.) You are hoping that the option expires worthless, so that you simply claim its value uninhibited. If it doesn't, you may be "assigned" i.e. legally on the hook for someone else's exercise of the option. If you sold a put, you may be forced to pay an inflated price for a stock that crashed. If you sold a call, you may be forced to acquire stock in order to sell it at a discount in order to fulfill your option. The potential loss for selling a put typically far exceeds the maximum potential profit; the potential loss for selling a naked call is unlimited (as we suppose the stock's value can go to infinity).
But if your sale of a call is "covered", or your sale of a put is "cash secured", this means you fully own the security (underlying stock, or liquid assets respectively) corresponding to the option. The cash secured put still incurs the risk of wiping out your entire cash supply, much as if you'd simply bought 100 shares directly, and it puts a hard limit on your upside. But it lets you profit from the stock without actually holding it.
Given sensibly chosen strike prices, covered calls actually end up with a similar risk/benefit profile. As the stock goes to zero, all you end up with is the option premium, because you were holding the stock. If the stock does well, your net profit is limited to the option premium, because the profit from holding the stock cancels out the liability of the option. (Equivalently: you are required to sell the stock at the strike price, but you already have that stock; no matter how high the underlying stock value gets, you can only claim the strike price.)
[0]: Doing both gives risk exposure roughly equivalent to holding the stock, without actually buying it. This is called a "synthetic long". As you can imagine, that is effectively unlimited leverage in itself, and if you attempt it you will be required to hold a significant amount of cash to limit your leverage, and jump through a lot of regulatory hoops to prove both your competence and solvency. I didn't mention this at the start, because you need the details to understand it.
Note: you pay overnight swap fees or similar for holding a position. "The market can stay irrational longer than you can stay solvent."
If you are having to ask an LLM how to do it, I strongly suggest NOT starting with shorting.
Ask about Put options, which is what Burry is doing here — not even Burry is shorting for this situation.
I'm no expert trader, but the potential losses for shorting are unlimited. You borrow X shares of a stock, and will have to repay your loan in that stock, whatever it costs. If the trade goes against you, you will get a margin call and will need to (re-)fill your account with whatever funds are necessary to pay that amount, or all your other holdings and that position will get sold automatically at whatever that loss amount is. Situations called a "Short Squeeze" arise not infrequently, and even though they are temporary, they can cause a stock price to skyrocket, specifically because so many people are shorting it, and everyone needs to buy to fill their short positions & margin calls. The fact that the price soon falls again helps you not one bit. Plus, the maximum profit is limited to the value of the short. E.g., you short the stock at $100/share, if the company goes bankrupt, you can repay the shares for $zero, making $100/share; but you could lose $1000/share if it goes up 10x.
In contrast, purchasing Put options, the right to sell the stock at a certain price, limits your loss to the cost of the Put options — if your idea turns out to be no good, it just fails and expires worthless.
Here's some MUCH better information:
Former options market maker here. Please don’t buy options as a retail investor. (Maybe write to generate income.)
I'm told that covered-call ETFs generally underperform (in addition to being inefficient) and "generating income" is best accomplished by just selling shares as needed.
Options are always overpriced. They're fundamentally an insurance product. You should expect to lose money when buying insurance. If you're hedging, you should expect to lose on your options leg. Same as with any insurance product.
Options are governed by tight mathematical relationships between each other and with their underlyings. These can be atomically arbitraged, i.e. you don't need someone else to believe your thesis to make money. As a retail investor, you are on the other side of a system designed to efficiently price and reprice options to ensure the dealer doesn't lose money.
> I'm told that covered-call ETFs generally underperform (in addition to being inefficient)
I haven't looked into covered-call ETFs, but my prior is strategy ETFs are bullshit even when the underlying strategy may not be.
> "generating income" is best accomplished by just selling shares as needed
Yes. (Or borrowing against them.)
It works as long as you understand you're selling the options below their expected value (EV). It's closer to EV than an option buyer, on average. But the price you get will always represent less reward for risk than my option pricers running on microwave-linked FPGAs a few feet from servers in New Jersey and Chicago can bid and offer.
If that works for you--if the benefits of income or whatever outweigh that theoretical cost--you can do it sensibly. If you're selling puts to enhance your returns, you're probably going to, at the very least, lose your accumulated gains at some point.
So he bought (he's long on the PUTs) 10 000 PUTs on NVDA and 50 000 PUTs on PLTR. I don't know at which expiration dates nor at which strikes.
A PUT option can be either a bet (like in TFA) that an underlying shall go down below a certain price before a certain date of it can be an hedge when you own the stock, believe it could go up some more, but also want to be protected should it crash. Now of course hedging has a cost and it's not cheap: an option is an insurance. Even the terminology is the same: the buyer pays a premium and the seller (i.e. the one selling the insurance) collects that premium.
Now if you want to learn about full-on degenerate gambling, these last years there's been an explosion in "0DTE": options with zero day to expiration. Because they're 0DTE, there's very little "extrinsic" value in these. So it's a "cheap" way to get basically 100x leverage (either short or long).
Here's a small documentary of 5 minutes about 0DTEs:
But the risk profile of options depends on more than date to expiration. Of course the strike prices matter, as well as the rest of your portfolio. The real "degenerate gamblers" are taking that leverage without compensating for it. But for example, holding something with 100x effective leverage can be balanced out by only putting 1% of your portfolio there and keeping the rest in cash. (This will generally be inefficient and there's a high chance you won't do as well as just holding the underlying.)
That margin call could obliterate him.
Also, this is not an argument in favor of Nvidia or Palantir.
The sources I can readily find put Burry's current net worth in the neighbourhood of $300 million. Depending on the regulations, he probably actually could put his entire life savings into a short of this magnitude. Of course, that's sort of like having your entire 401(k) in a -4x levered ETF, even worse because it's on individual stocks.
The filing doesn't appear to disclose strike prices or expiration dates. But my guess is that he loaded up on very cheap puts (low strike price) to hedge against the apocalypse (low probability of winning big to cover losses from everything else; high probability of just paying some insurance money). The same form shows bullish positions in other sectors — health care, finance and energy, as well as some corporate bonds. Given what the portfolio in the filing looks like overall, it's hard for me to imagine him being willing to risk more than a few million on this.
It doesn't matter if it's the best firm ever and will get its dividends forever. You still calculate reasonably.
People say this kind of thing about Tesla as well, and Tesla has been stuck as a slightly-smaller-than-Mercedes-Benz sized firm for years and will stay like that forever, or even shrink relative to MB.
NVIDIA has a much more reasonable P/E ratio, even though it is of course very high.
This isn't a matter of rules of thumb. This is what's required to have prices that do not create an arbitrage opportunity.
Both companies are growing revenue at a similar rate (~50% YoY), and Nvidia has a higher net margin, however Palantir's share price is up 717% over 18 months, whereas Nvidia is only up 124%.
It's hard to argue Palantir's valuation reflects its fundamentals, even if you believe Palantir will be benefit from lucrative government contracts for years to come.
Buying companies at 80x revenue has not historically been a great way to make money, unless they're growing revenue at several hundred percent per year.
I'm old enough to remember it being impossible to imagine a world without the USSR in it.
