The 2008 financial crisis had rolled forward a series of events that many financial experts had fathomed for decades. People started defaulting on their loans, businesses went bankrupt and an asset class which people believed would never “tank” came down drastically in value due to speculation and other widespread bets placed through various derivative contracts.
Dr. Michael Burry of Scion Asset Management LLC had predicted the housing crisis way ahead of its time while many frenzy investors were still busy buying and selling CDO’s and making a hefty profit by flipping contracts like houses.
Ever since then, Dr. Burry has been a key figure in the US financial markets. His latest 13-F filing reveals massive bets placed on a handful of companies a pattern similar to the months prior to the 2008 crisis.
Even though the firm’s equity holdings are sitting at $91 million, the firm’s portfolio is in fact worth slightly over $315 million.
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Image credit: Author
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Image credit: Author
During the first quarter of 2020, he held diversified positions in multiple stocks such as GameStop, Jack in the Box, Qorvo, Maxar Technologies, and Facebook.
However, post the second quarter he readjusted the portfolio by acquiring smaller portions in various other stocks in addition to purchasing massive amounts of “call options” on various companies.
According to Investopedia, “call options are financial contracts that give the option buyer the right, but not the obligation, to buy a stock, bond, commodity or other asset or instrument at a specified price within a specific time period.
The stock, bond, or commodity is called the underlying asset. A call buyer profits when the underlying asset increases in price”.
In general, an option is a contract between two investors. One of them is writing the option, and the other is buying the call option.
For example, if the option seller is explicitly writing calls on Tesla the contract will state that if “Tesla’s shares reach a stock price higher than X by a specific date, then you can buy the Tesla shares off of me for a strike price of X”.
An advantage for the buyer is that he/she can choose not to exercise this right if the stock is trading at a price lower than X.
But in case the stock price surges above X, he/she can buy the shares for X, and subsequently, sell it in the markets for a higher price resulting in a profit.
With regards to Dr.Burry, his 13-F filings didn’t disclose the strike price and expiry dates for all the long positions he had acquired. So, it is correct to say that they own $91 million in stocks but the firm’s “total long position” is worth slightly over $315 million inclusive of all the “long calls”.
Some of his biggest call option positions are Google, Facebook, Booking Holdings Ltd, and Goldman Sachs.
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The famous fund manager as portrayed in the award-winning movie “The Big Short” bought 80,000 call options on Google (GOOG), spending $113M.
Scion’s next three top holdings are also call options. Facebook (FB), Booking Holdings (BKNG), and Goldman Sachs (GS).
“The firm’s 16 call positions represent 71.19% of the Q2 portfolio of which 36% is represented by Google”.
He sold out Facebook stock but acquired call options to perhaps weigh out the ad-controversies and profit from the stock once it rebounds.
A similar logic could be applied to Booking Holdings Ltd since the travel industry has taken a beating, once the markets rebound the stock should reflect a change in fundamentals similar to Carnival Cruises.
“Dr. Burry slashed Scion’s Gamestop (GME) stake during Q2. GME represented 3.79% of the long portfolio, down from 12.23% in Q1. Scion filed a 13D targeting Gamestop in August of 2019 when the stock was at $3.87. In a letter to management, Burry recommended a ‘game-changing’ buyback of shares”.
Calls are therefore, an alternative to buying a stock outright.
If the stock price rises you can end up with a profit, without taking on all of the downside risks that would otherwise result from owning the stock.
It is also possible to magnify your gains through leverage over a greater number of shares than you could afford to buy outright because the calls are always less expensive than the stock itself.
But one should err on the side of caution with such matters, especially with short-term ‘out-of-the-money’ calls. If you buy too many option contracts, you end up increasing your risk.
Part of the conventional definition also suggests that “options may expire as being worthless and one can lose their entire investment, whereas if someone decides to own the stock it will usually still be worth something to that individual”.
It is safe to assume that his firm is “in-the-money” for most of his positions but one can only make assumptions heading into the investment world. However, in hindsight, everything appears to be accurate.
For more interesting articles on the US markets, you can check out some of my other articles below:
Berkshire Hathaway’s 13-F Filing Reveals A $9 Billion Investment And Uncertain Times Ahead
Apple’s Upcoming Innovation Could Be A Potential Threat To Google’s Monopoly
Why Is Warren Buffett Buying An Asset Class He’s Always Been Against?
What Jeff Bezos’s Sell-Off Indicated About The US Stock Market
Will You Enroll at “Google University” for $49/Month?
Can Investing Alone Turn You Into a Millionaire?
Can Printing Money Stabilize The Economy? …
On November 17th, Kamala Harris returned to the Senate floor for the first time since the election elevated her to the position of Vice President-Elect. There, an interaction took place between her and a fellow lawmaker that — I’m ashamed to admit — genuinely surprised me, even for her. On Twitter, The Recount posted video footage of Vice President-Elect Harris extending her fist out, waiting for the “bump” to come from whoever it was that she was hoping to share the friendly interaction with.
As the video goes on to show us, the person, interestingly enough, happened to be GOP Senator and top Trump ally, Lindsay Graham.
The very same Lindsay Graham who has publicly been more than willing to do his part in order to help President Trump undermine the legitimacy of the election that made Harris Vice President-Elect. The very same Lindsay Graham who is currently facing calls to resign because it was disclosed that he was attempting to pressure the Georgia Secretary of State to throw out votes for Joe Biden and Kamala Harris.
Stephanie Saul with The New York Times writes:
“…Mr. Graham, who has transformed during that time to become one of Mr. Trump’s most loyal allies, now seems determined to reverse the election’s outcome on the president’s behalf. On Friday, he phoned Brad Raffensperger, the secretary of state of Georgia and a fellow Republican, wondering about the possibility of a slight tinkering with the state’s elections outcome.
What if, Mr. Graham suggested on the call, according to Mr. Raffensperger, he had the power to toss out all of the mail-in votes from counties with high rates of questionable signatures on ballots?
In an interview with The Washington Post, Mr. Raffensperger said he was stunned that Mr. Graham had appeared to suggest that he find a way to toss legally cast ballots.
“It sure looked like he was wanting to go down that road,” Mr. Raffensperger said of the call from Mr. Graham, the chairman of the powerful Senate Judiciary Committee.”
Obviously, this is about far more than a friendly “fist-bump” between two colleagues. Rather, it feels as if its an all too perfect representation of everything that has brought us to this moment, and why I and countless others currently have such little faith that the current Democratic party is capable of helping us to recover.
For years, all we have heard about is the threat that Donald Trump poses to the democratic process of the United States. Many have rightly observed — in an effort to implore people to vote for Joe Biden — that the man would burn the country down for the sake of his own ego. Since before he even took office we have been expecting this incredibly volatile moment in which the President would refuse to acknowledge his defeat. Well if the President poses such a distinct threat, then why are the very people whose legitimacy he is threatening extending friendship to the very same people who are actively doing everything they can to rip what’s left of our semblance of democracy away from the American people?
Aside from Donald Trump and Rudy Guiliani, there is arguably no prominent Republican working harder to attempt to steal this election from Joe Biden and Kamala Harris than Lindsay Graham. But I should not have been as surprised as I was to see Kamala Harris extending a gesture of friendship to a man who — when push comes to shove — actually agrees with her on a number of the core issues. There might be some disagreements around the edges, but on key policy matters of substance such as Wall Street, the Military Industrial Complex, and Silicon Valley, the two seem to find common ground in resisting any meaningful change that would be beneficial to the people.
As I watched the video of Harris and Graham, I couldn’t help thinking that we have arrived in this moment because of that sort of behavior and what it represents. We are at this pivotal era, with a full-blown fascist closer than ever before to achieving their autocratic breakthrough in the United States, because Democrats like Kamala Harris continue prioritize a sense of decency and friendship with their Republican colleagues over the stability of the country.
Meanwhile, Republicans rightfully take the Democrats’ kindness for weakness, and will pat them on the back at the very same time they try to undermine their right to govern.
It’s hard not to look at the two of them, and feel as though this all really is nothing more than a game. With each passing election, it seems as though the nation gets closer and closer to the point of no return, and the incredibly cynical part of me can’t help wondering if we’re already there. If Kamala Harris’ friendship with Lindsay Graham is enough to allow her to overlook the dangers of what he’s doing to the legitimacy of opposition to the GOP’s power even as it applies to her personally, then what protections do we have four years down the line as she still pretends he has a sense of decency and honor to appeal to? …