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Michael Burry shorts Major index in sizable bets

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Re: Michael Burry shorts Major index in sizable bets

#41

Post by grouchomarx »

slashdev wrote: post #36
senthil_rajasek wrote: post #23

From earlier this year (Jan?), Michael Burry of ‘Big Short’ fame expects another ‘inflation spike’ after recession rocks U.S. " Cassandra B.C. @michaeljburry · Inflation peaked. But it is not the last peak of this cycle. We are likely to see CPI lower, possibly negative in 2H 2023, and the US in recession by any definition. Fed will cut and government will stimulate. And we will have another inflation spike. It's not…

He can be wrong on the timing but right on the prediction. I think he could still be right here in 2024. Certainly he was right about inflation peaking. So now is that recession still to come or not?

Timing is the whole thing though really

Re: Michael Burry shorts Major index in sizable bets

#42

Post by thefourthchime »

ivalm wrote: post #34
thefourthchime wrote: post #32

FWIW: Clark Howard, a finance guy I highly regard, predicts that the 4th quarter will see a softening of the economy. His reasoning is that the regional banks are being extremely tight with lending right now, and by the fourth quarter many small/medium businesses will have trouble staying afloat due to the lack of financing.

But are small businesses that important at this point?

They employ about half the jobs in America, so yeah.

Re: Michael Burry shorts Major index in sizable bets

#43

Post by flaboonka »

thefourthchime wrote: post #32

FWIW: Clark Howard, a finance guy I highly regard, predicts that the 4th quarter will see a softening of the economy. His reasoning is that the regional banks are being extremely tight with lending right now, and by the fourth quarter many small/medium businesses will have trouble staying afloat due to the lack of financing.

I have been watching for that as well, but as of yet there is no sign of it in the Fed's National Financial Conditions Index [1]. Financial conditions are continuing to slowly loosen. But things can change quickly.

[1] https://www.chicagofed.org/research/data/nfci/current-data

Re: Michael Burry shorts Major index in sizable bets

#44

Post by the_only_law »

thefourthchime wrote: post #32

FWIW: Clark Howard, a finance guy I highly regard, predicts that the 4th quarter will see a softening of the economy. His reasoning is that the regional banks are being extremely tight with lending right now, and by the fourth quarter many small/medium businesses will have trouble staying afloat due to the lack of financing.

A lot of the small businesses near me are already collapsing, though it seems a lot of that is delayed downfall from Covid.

Re: Michael Burry shorts Major index in sizable bets

#45

Post by OJFord »

jjoonathan wrote: post #5
xcxcx wrote: post #3

He's not short the index, he's long the puts. Different convexity profile.

I need some ELI5 help here. Does that mean he bet on a big, fast downward move as opposed to a slow, small downward move?

Not in general, depends on interest rates & others' bets for or against.

Shorting means selling without owning (borrowing) the underlying stock, and paying a borrow fee for as long as you hold the position.

Buying (being 'long') a put means paying money up front (the premium) for the option to sell a stock (doesn't matter if you own it or not at the moment) before a certain expiry date.

Typically you would be more likely to hold a short position longer than you'd roll over options, as far as I understand. But it's not clear cut and generalisable because the fee structure is different.

Also buying puts you have no risk if the stock rises - you're out the premium but you were anyway. If you sold short, it's getting more and more expensive to cover if you want to give up on the bet (and borrow fee probaby rising too, so also increasingly expensive to hold).

Re: Michael Burry shorts Major index in sizable bets

#46

Post by slashdev »

dragonwriter wrote: post #38
slashdev wrote: post #36

Earlier quoted context omitted.

He can be wrong on the timing but right on the prediction. I think he could still be right here in 2024. Certainly he was right about inflation peaking. So now is that recession still to come or not?

> He can be wrong on the timing but right on the prediction. The prediction, stripped of timing, is nothing. “Someday, there will be a market crash” is almost certainly true, but means nothing.

There’s obviously a middle ground between the two extremes, where the prediction would still be significant.

Re: Michael Burry shorts Major index in sizable bets

#47

Post by elicksaur »

It’s a 13F filing [1], so the article’s phrasing is a little sensationalist. The big number is the value of the underlying stocks, not the premium paid on the options, which is what they’d be risking. The information is 45 days old and they could’ve exited this position the next trading day, 42 days ago (July 3rd).

The $1.6b number comes from listings of:

$738,840,000 for QQQ Puts.

$886,560,000 for SPY Puts

Which is calculated based on the closing value of the underlying stocks on June 30th. Option contracts are for 100 of the underlying security, so 2M reported shares is 20k options.

$886.56M = $443.56 * 20k * 100

If the value of the options contract is $1, the positions for both securities could be replicated for $40,000 total risk.

It doesn’t tell the reader anything about the expiry date or the value of the premium paid, which would be actually useful information.

If someone wanted to, they could guess the size of the risk based on the immediately previous 13F filing and comparing what was sold off, but that would be based on too many assumptions to be super useful either.

[1] https://www.sec.gov/Archives/edgar/data/1649339/000090514823...

Re: Michael Burry shorts Major index in sizable bets

#48

Post by Havoc »

oblio wrote: post #33
Havoc wrote: post #14

Everyone and their dog knows this is gonna crash. The question is when. > “Markets can remain irrational longer than you can remain solvent”

Why crash? We've almost deflated the bubble with the help of crypto and high inflation.

Nothing has deflated yet. The bubble has wobbled at peak inflatedness at most.

Re: Michael Burry shorts Major index in sizable bets

#49

Post by throw0101c »

mmastrac wrote: post #8

You gotta give it to him. Michael Burry has predicted 20 of the last 3 crashes.

If any one is curious about the source of this aphorism:

> To prove that Wall Street is an early omen of movements still to come in GNP, commentators quote economic studies alleging that market downturns predicted four out of the last five recessions. That is an understatement. Wall Street indexes predicted nine out of the last five recessions! And its mistakes were beauties.[20]

* https://en.wikipedia.org/wiki/Paul_Samuelson#Aphorisms_and_q...

Re: Michael Burry shorts Major index in sizable bets

#50

Post by projektfu »

dragonwriter wrote: post #38
slashdev wrote: post #36

Earlier quoted context omitted.

He can be wrong on the timing but right on the prediction. I think he could still be right here in 2024. Certainly he was right about inflation peaking. So now is that recession still to come or not?

> He can be wrong on the timing but right on the prediction. The prediction, stripped of timing, is nothing. “Someday, there will be a market crash” is almost certainly true, but means nothing.

With options, timing is essential.
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