Contract between two investors. The writer of said contract receives a fee from purchaser of the contract. The purchaser, in return, gets the "right" to exercise on the terms of the contract.
In short (pun intended) Burry is making a bet that the price of a security will be at a particular price by or before a date stated on the contract. The writer is willing to take the risk that it will not and for that risk gets paid a small fee. Writer is hoping (strike) price is not achieved therefore contract not exercised and writer walks away with the fees.
Burry appears to have purchased a massive amount of put contracts giving him the right to "Put" the securities on the writer of said contract requiring the writer to purchase those securities from Burry at that price IF the strike price is met on or before the expiration date.
Simple example (without getting into the weeds on quantity of shares per contract and fees per contract etc.):
If the price of this $1.6B investment goes down to $600M by 9/29 you will have to buy them from me at $1.6B. In reality Burry doesn't own $1.6B in that security but certainly will buy it if and when it reaches $600M in order to turn right back around and sell it to the writer at $1.6B and make a cool $1B as the difference and profit.
The truth is neither party usually cares about owning those securities. They care about the bet. The bet is what has value in this type of transaction. The writer wants the fee and the buyer wants the difference between the strike and price on contract. Should the buyer of contract exercise, the writer doesn't buy the securities he simply gives the other party the portion that is considered the profit. The $1B difference.
Long story short Burry, although details have not been disclosed, has paid somewhere between $30M and $90M depending on the price of the contracts to make that bet. I wouldn't call this exactly a hunch and no one makes that kind of play without being pretty damn certain it will pan out. He stands to gain massive amounts of money should the market do what he thinks it will do. I have been convinced for over a year it will indeed.
But the position he just took against the stock market came without any commentary. According to Scion's second-quarter 13F filing with the Securities and Exchange Commission, the firm bought put options against the tech-focused QQQ ETF worth $739 million and put options against the SPY ETF worth $886 million.
Those figures represent the notional value of each position -- options are leveraged securities, so Scion would have paid significantly less than that (the amount wasn't disclosed). Put options express a bearish view of a given market, so if the QQQ and SPY ETFs decline in value, the premium Scion paid for its options will increase in value -- which will deliver a profit for the firm.
I don't believe the exp. date has been disclosed. No doubt someone with some time and attention to detail could find those transactions within historical data and match up the contracts purchased and arrive at a relatively accurate assumption of which contracts were purchased.
It's doubtful (IMO) the contracts are LEAPS since he has been indicating the market is going to crash since at-least January. In addition, market downturns have typically turned during the months of September and October. That's not to say that it must happen in that time frame but given the right conditions it is more likely to happen during that time period.
Burry is no doubt using historical markers to give insight into possibilities but is extremely likely using data to confirm a direction to that end. Historical market behavior is the clue and current data confirmations are the mile markers along the way one would watch for that would dwindle other possibilities that would raise probabilty that assumptions are correct. Once someone sees enough confirmations to a path one can make a pretty accurate decision on if or when to make the call. In 2008 he made the call early BUT the data indicated a sure bet. He simply had to have the staying power to sustain losses until it came to fruition and eventual pay out. Many have access to the same data points but few have the funds to sustain the losses before the pay out and even fewer have the intestinal fortitude to stick with their conviction while pressure of losses mount.
Contract between two investors. The writer of said contract receives a fee from purchaser of the contract. The purchaser, in return, gets the "right" to exercise on the terms of the contract.
In short (pun intended) Burry is making a bet that the price of a security will be at a particular price by or before a date stated on the contract. The writer is willing to take the risk that it will not and for that risk gets paid a small fee. Writer is hoping (strike) price is not achieved therefore contract not exercised and writer walks away with the fees.
Burry appears to have purchased a massive amount of put contracts giving him the right to "Put" the securities on the writer of said contract requiring the writer to purchase those securities from Burry at that price IF the strike price is met on or before the expiration date.
Simple example (without getting into the weeds on quantity of shares per contract and fees per contract etc.):
If the price of this $1.6B investment goes down to $600M by 9/29 you will have to buy them from me at $1.6B. In reality Burry doesn't own $1.6B in that security but certainly will buy it if and when it reaches $600M in order to turn right back around and sell it to the writer at $1.6B and make a cool $1B as the difference and profit.
The truth is neither party usually cares about owning those securities. They care about the bet. The bet is what has value in this type of transaction. The writer wants the fee and the buyer wants the difference between the strike and price on contract. Should the buyer of contract exercise, the writer doesn't buy the securities he simply gives the other party the portion that is considered the profit. The $1B difference.
Long story short Burry, although details have not been disclosed, has paid somewhere between $30M and $90M depending on the price of the contracts to make that bet. I wouldn't call this exactly a hunch and no one makes that kind of play without being pretty damn certain it will pan out. He stands to gain massive amounts of money should the market do what he thinks it will do. I have been convinced for over a year it will indeed.
God speed.
Thank you.
All the Best to you.
👍
Investopedia.
With long noses.
https://www.fool.com/investing/2023/08/16/big-short-michael-burry-16-billion-against-stock/
What's the exp. date on those puts? Any idea? I bet they're LEAPS.
I don't believe the exp. date has been disclosed. No doubt someone with some time and attention to detail could find those transactions within historical data and match up the contracts purchased and arrive at a relatively accurate assumption of which contracts were purchased.
It's doubtful (IMO) the contracts are LEAPS since he has been indicating the market is going to crash since at-least January. In addition, market downturns have typically turned during the months of September and October. That's not to say that it must happen in that time frame but given the right conditions it is more likely to happen during that time period.
Burry is no doubt using historical markers to give insight into possibilities but is extremely likely using data to confirm a direction to that end. Historical market behavior is the clue and current data confirmations are the mile markers along the way one would watch for that would dwindle other possibilities that would raise probabilty that assumptions are correct. Once someone sees enough confirmations to a path one can make a pretty accurate decision on if or when to make the call. In 2008 he made the call early BUT the data indicated a sure bet. He simply had to have the staying power to sustain losses until it came to fruition and eventual pay out. Many have access to the same data points but few have the funds to sustain the losses before the pay out and even fewer have the intestinal fortitude to stick with their conviction while pressure of losses mount.
I'm just wondering when I good time to buy my own puts woukd be.