The Big Shorter is Shorting Again

Happy Monday!

As volatility increases and we continue down the worst month of 2023 (so far), concerns are rising about what is coming. While the average investor sees this as a bad thing, we can use the strategies that we covered over the past few weeks to protect our assets and even gain from a sharp market decline.

One great example of this is Michael Burry (who was played by Christian Bale in The Big Short), has taken a massive position on a market decline. He holds far out of the money puts ($2,000,000 worth) that will pay out a fortune if our downward spiral continues.

Some think that there’s a chance he has exited the position, but I personally doubt it. Large funds require big moves to make up for anything sitting in cash. It would be far too dangerous of a move to put 100% of your portfolio in puts, that have a set expiration where they could expire worthless.

That said, he will be looking for a 10% percent drop before selling out of the position (this is all speculation on my end, but I am fairly familiar with how these funds trade).

Will the collapse come?

Well, who really knows? Confirmation bias will tell us that inflation isn’t going away, student loan payments are set to resume in October, and consumer debt just passed $1Trillion.

Personally, I do worry about what is to come but will not change my core barbell strategy. This is why we do it!

Just like Burry, our strategy will massively benefit on a large downward move. At the same time, continuing to buy calls to the upside negates the risk of missing on a large move to the upside.

The calls and puts we own are mutually exclusive. Only one of these positions can be right and the other will be worthless. This is why we 1. exit the position early and 2.

Placing our consistent bets

I did grab a quick 1 day to expiration put for fun and a small profit last week. Additionally, I have extended my Put Ladder over 40, 60, and 130 days.

I do worry about our economy. But more importantly, I worry about you. I worry about people like my parents, who are mostly retired.

These large corporations will be fine. If a fall happens, a bailout is likely for them. Your bailout? You will be told to keep your chin up and move on.

Don’t let a market collapse destroy you. Take action now, pay for the downside insurance at the very least buy spending 1-3% of your portfolio on puts. If they expire worthless, you lose a negligible amount. If the collapse takes place, you will avoid catastrophe.

Sorry for the fear mongering, but that is why we do this!

Have a great week!

Ryan

Financial Disclaimer:
This newsletter provides educational content only, not financial advice. Conduct your research and consult with a qualified professional before making any decisions. We are not liable for any losses incurred based on the information provided. Invest with caution and consider your risk tolerance.