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Burry’s Big Short: Was It a Calculated Trade or Just a Gamble?
By Shane Addinall Oct 20, 2021 IndustryMichael Burry is making headlines with his Tesla short disaster, and we are left to speculate how much money this mistake cost him. Did Burry’s Scion Asset Management make an informed trade decision or was this merely an uneducated gamble?It’s been reported that Michael Burry has abandoned his multi-million bet of 800,100 shares against Tesla. This is after he very publicly announced that he is betting against the EV company on 31 March 2021. The share price of TSLA only continued to increase, leaving Burry red-faced and at a huge loss.
And what was this world-famous bear’s remarks on the big loss? His “short” answer to that was: “It was just a trade.”
The debate is on - Did Burry actually lose as much as what has been reported or is he downplaying his loss? No one knows exactly how much money was lost (as it is not known at which price Burry made his wager), but based on his reaction, it is possible that he took ample precautionary measures to mitigate the loss, as purchasing Put Options Shares comes with a relatively low time premium to pay.
The fact is that the trade did not go in his favour, but it is possible that the media blew things out of proportion. It is interesting however that Burry waited until he closed the position before correcting the media.
Hindsight is 20/20
Burry raised some valid points with his statement as he was shorting Tesla purely through options and not a gigantic stake as the media made it out to be. We can’t help but see this trade as making an uneducated gamble rather than a well thought out strategic trade decision. Burry commented:
“Media really inflated the value of these things. I was never short tens or hundreds of millions of any of these things through options, as was reported. The options bets were extremely asymmetric, and the media was off by orders of magnitude.”
Looking at the TSLA graph after the fact it now seems as if he made the worst decision he could make at that moment, almost as if this world-renowned investor did not do his homework when he placed this large bearish bet against Tesla.
On top of that, Burry made his decision public, giving fellow investors the impression that he knew something they did not.
Winners Know When to Stop
Looking back, it is possible that Burry did not look at the big picture before this put option was placed. Should he have studied the TSLA graph more carefully before he placed his “bet” (as one would expect from a world-famous bear to do) or should he have exited the trade earlier?
One can make irrational investment decisions for the possibility of a high payout, but this does not always pay off, whether one invests in shares like Burry or gambles, making them one and the same thing.
Trading successfully in stocks takes years of experience, education and knowledge before a calculated trade is made. Gambling, being uncalculated, is not about doing the research or having the knowledge.
Burry took a “gamble” and lost, we too can learn that it is important to take the necessary measures not to lose more than we can afford to. We may all just be “playing” the same “game”.
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