Thank you, Michael Burry

Closed out my put option positions

When Michael Burry disclosed his put option positions, we thought we would jump into that trade not to blindly clone him, but rather because it made total sense given the following factors:

• Short-term interest rates are above 5.0%;

• Long term interest rates are above 4.7%;

• “Higher-for-longer” interest rates;

• Earnings yield are below 5%, not sufficiently compensating for equity risk (low equity risk premium);

• Implied volatility was at historic lows, touching 12% at some point for the S&P 500 over the past few weeks - pricing in extremely regular market conditions and relatively cheap option prices; and,

• Lagging economic indicators are not looking healthy (increasing defaults, rising interest payments, expensive refinancing rates).

In this case, we benefitted from Vega quite nicely in two ways:

1. Purchased the option at low ImpVol; and,

2. As markets decline, ImpVol increases and, therefore, Vega increases option value.

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All options were ‘At The Money’ put options at the time of purchase, based on the below dates.

As with any option position, timing the entry and exit is quite important.

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Entry Points

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