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Michael Burry’s $1.6 billion bet is down this much after stock market sell-off

Michael Burry's $1.6 billion bet is down this much after stock market sell-off

Earlier this week, Finbold delved deeper into Michael Burry‘s attention-grabbing $1.6 billion bearish bet that took the financial world by storm back in August. 

Burry’s bold move involved 40,000 put options, constituting a substantial investment aimed squarely at the broader US stock market, encompassing numerous high-profile equities. Initially, traders and analysts questioned the wisdom of his strategy when the market rallied in the early weeks of September. 

However, recent market turbulence has notably boosted the value of Burry’s put options, potentially reigniting the debate over his uncanny foresight and leaving many to wonder if one of his controversial predictions is about to materialize again.

What happened?

Assuming he is still holding it, Burry’s bearish investment is tied to SPDR S&P 500 ETF (SPY) and Invesco QQQ Trust ETF (QQQ) – two major exchange-traded funds (ETFs) that track the performance of S&P 500 and Nasdaq-100 indexes.

In spite of an early rally, these two ETFs lost notable value since regulatory filings revealed Burry’s bearish bet on August 14. In particular, the SPY and QQQ are down 6.8% and 5.4%, respectively, since then. 

This bodes well for the hedge fund manager’s put options because when the value of the underlying stocks decreases, the put options gain value. 

Put options give holders the right to sell those stocks at a higher strike price, which becomes more valuable as the market price falls. The difference between the market price and the strike price represents the profit.

So is Burry’s bearish investment now profitable?

Although the price of underlying stocks is the primary factor that affects the value of put options, it is not the only one.

That said, Burry’s massive investment against the stock market is currently down 38%, according to stock trading expert Gurgavin Chandhoke. 

Supposing that he is still holding those, Burry spent around $26.5 million to build his bearish position, which has a notional value of $1.6 billion, Gurgavin’s estimates noted.

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