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Michael Burry a.k.a. "Big Short",discloses $1.1B bet against Nvidia&Palantir

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Re: Michael Burry a.k.a. "Big Short",discloses $1.1B bet against Nvidia&Palantir

#61

Post by the__alchemist »

candiddevmike wrote: post #54
the__alchemist wrote: post #49

Earlier quoted context omitted.

Can someone explain why puts make sense over shorting? For example, I'm betting against 5 quantum computing companies with short positions. I considered adding puts to the position, but it didn't make sense based on 2 reasons: High bid ask spread, and if it's a fraudulent company/otherwise worth betting against, the volatility will be high, so you option costs too much compared to the upside; the amount it has to dro…

With a put, you can only lose what the put is worth. With shorting, you can in theory have infinite loses.

Yea; true. My thought when evaluating these was "I am confident the price will drop significantly within the next 6-18 months. But if I screw up the timing, or it drops to 1/3 the value instead of 1/2 etc, I lose money or break even. While I'm reasonably confident the normal short will pay off, since I don't have to nail the amount or timing.

Re: Michael Burry a.k.a. "Big Short",discloses $1.1B bet against Nvidia&Palantir

#62

Post by ProjectArcturis »

moralestapia wrote: post #39

Does Michael Burry actually have $1.1B liquid? That margin call could obliterate him. Also, this is not an argument in favor of Nvidia or Palantir.

Read the article. He used options, which can't be margin called because they're already paid in full.

Re: Michael Burry a.k.a. "Big Short",discloses $1.1B bet against Nvidia&Palantir

#64

Post by JumpCrisscross »

pksebben wrote: post #37
humanlion87 wrote: post #30

Earlier quoted context omitted.

Not the OP. I agree with what OP is mentioning. As part of the report you have to file the notional value of the underlying stock. Let's assume I buy one put option for palantir at a price of $1/contract ( say for an extremely OTM strike price of $10 ). I have paid a premium of $100. Assuming stock price of palantir is $200, the notional value I have to report is $200*100 = $20k. And not the $100 premium I paid.

This seems to back that up: https://www.sec.gov/files/form13f.pdf FWIG you can't actually see what premium was paid on an option unless the buyer chooses to disclose that themselves.

> you can't actually see what premium was paid on an option

Nor the strike or tenor. (Options are more thinly traded than stocks. This confidentiality is practical.)

Re: Michael Burry a.k.a. "Big Short",discloses $1.1B bet against Nvidia&Palantir

#66

Post by SilverElfin »

moralestapia wrote: post #39

Does Michael Burry actually have $1.1B liquid? That margin call could obliterate him. Also, this is not an argument in favor of Nvidia or Palantir.

That’s why he did options instead of directly shorting the stock. You’re betting against them but with a capped downside effectively.

Re: Michael Burry a.k.a. "Big Short",discloses $1.1B bet against Nvidia&Palantir

#67

Post by toss1 »

JKCalhoun wrote: post #14
_f9cu wrote: post #6

how to do such betting ?

Ask an LLM how to short specific stocks.

Um, please do not suggest people ask that.

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:

https://www.investopedia.com/terms/l/long_put.asp

Re: Michael Burry a.k.a. "Big Short",discloses $1.1B bet against Nvidia&Palantir

#68

Post by ProjectArcturis »

the__alchemist wrote: post #61
candiddevmike wrote: post #54

Earlier quoted context omitted.

With a put, you can only lose what the put is worth. With shorting, you can in theory have infinite loses.

Yea; true. My thought when evaluating these was "I am confident the price will drop significantly within the next 6-18 months. But if I screw up the timing, or it drops to 1/3 the value instead of 1/2 etc, I lose money or break even. While I'm reasonably confident the normal short will pay off, since I don't have to nail the amount or timing.

With shorting, you run the additional risks that you could lose the borrow and be forced to buy back at any time. Or get margin called if the price moves against you. With puts, you have to get the timing right, but no external factors can force you out of your position.

Re: Michael Burry a.k.a. "Big Short",discloses $1.1B bet against Nvidia&Palantir

#69

Post by ericmcer »

lordnacho wrote: post #9

I'm not sure the bet is as big as it seems from the headline. When you buy options, you pay a fixed premium to get the right to buy/sell a very large value of shares, called the notional. But the notional is not what you are losing if it goes wrong, you lose the premium. The premium can be quite a small number compared to the notional.

Yeah I feel like 200m of PLTR put options would distort the market so much the contracts would struggle to overcome their own premium.

They must be referring the the value of the shares the contracts represent?

Re: Michael Burry a.k.a. "Big Short",discloses $1.1B bet against Nvidia&Palantir

#70

Post by lvl155 »

JumpCrisscross wrote: post #53
lvl155 wrote: post #28

Just because something is expensive doesn’t mean you should short it via puts as Burry had done. Both Palantir and Nvidia have high IVs. You’re paying for that. You’re much better off looking for cheaper puts on securities with enough correlation. Since Volmageddon and pandemic craze, deep OTM options have been scalped to death. Rarely good value. Nvidia also didn’t report earnings yet which means you’re paying for t…

> Both Palantir and Nvidia have high IVs 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 c…

I am not saying he won’t make money. But it won’t be commensurate with the risk he took on.
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