Thread by @AlbertBridgeCap

A quick thread to clarify the misinformation on Scion/Burry’s short bet on Tesla.

As many have already noticed the media is running with this notion that Michael Burry of “The Big Short” fame is short $534 million Tesla via a put strategy.

However, as has been quickly identified by Fintwit, the 13F numbers are “notional”, which means they represent the number of underlying shares in the put contracts multiplied by the stock price – no matter what the strike is.

And it is of most importance where the puts are struck.

If the stock price was $667.93 on March 31, what matters most is if these “rights to sell” the stock were in-the money (aka higher than the share price), or out-of-the-money (lower than the share price).

And assuming they were out-of-the-money, it very much matters how much out-of-the-money they were.

Before I get to the conclusion, even though most of us knew Burry’s short bet wasn’t actually $534 million, it ended up being a lot larger than I expected.

Anyway, the 13F disclosed that Scion/Burry was long 8,001 put contracts (at some unknown strikes) that had $534 million of notional value. This “notional” value simply multiplies the put contracts by the closing share price on March 31, 2021.

$534,411,000 of notional divided by 8,001 is indeed $667.93, so the math checks out.

We don’t know which strikes Scion owned, nor the expiry dates, all we know is Scion owned 8,001 Tesla puts on March 31.

This was The Big Error in reporting of the exposure.

However, if we assume this exposure is exchange-traded (big assumption) when can next look to see where the open interest was on March 31 to hazard a guess at Scion’s actual delta exposure here.

Surely most option houses have already done this.

There was lot of open interest the September 2021 expiry, for example. It was enough to satisfy our constraints.

So, if we assume a position that was slightly out-of-the-money, using a tranche of strikes from 600 to 700 (and assume about 40% of the open interest in each was Scion’s), then we see some interesting numbers.

In other words, if these were the puts Burry owned, he still had a nearly $200 million (delta-adjusted) short position on March 31. It wasn’t $534 million, but it wasn’t small by any stretch.

Alternatively, again using September expirys but further out-of-the- money strikes, we can get there with a tranche of 400-500 strike puts where open interest at a few different strikes seems high enough to satisfy our requirements.

Here in this scenario the position was not as huge, coming it at about $75 million of actual exposure, not the $534 million reported widely in the press.

Finally, it may have been that Scion’s put exposure was much longer-dated. I went out and found a bunch of open interest in January of 2023, for example, enough to satisfy our size requirements.

In this (again, hypothetical) longer-dated case, we were looking at a $145 million bet against Tesla. Sure, it wasn’t $534 million, but it was still substantial.

And the beauty (?) of option exposure is that it can quickly become less or more substantial (especially for the shorter-dated options).

For example, since this March 31 disclosure, the Tesla share price has dropped precipitously. It is trading today (May 18) for $585.

Updating the deltas from the near-the-money scenario, Scion’s (again, hypothetical) $197 million bet on March 31 would now be a $255 million bet.

So, hopefully that clears things up a bit.

The bet against $TSLA wasn’t $534 million, but it wasn’t peanuts either.

If I am wrong on the numbers, I am sure @openoutcrier, @KrisAbdelmessih, @joshmanmode, @bennpeifert, or @nope_its_lily will spot the error and soon correct it.