I'm not sure the bet is as big as it seems from the headline. When you buy options, you pay a fixed premium to get the right to buy/sell a very large value of shares, called the notional. But the notional is not what you are losing if it goes wrong, you lose the premium. The premium can be quite a small number compared to the notional.
Not the OP. I agree with what OP is mentioning. As part of the report you have to file the notional value of the underlying stock. Let's assume I buy one put option for palantir at a price of $1/contract ( say for an extremely OTM strike price of $10 ). I have paid a premium of $100. Assuming stock price of palantir is $200, the notional value I have to report is $200*100 = $20k. And not the $100 premium I paid.
On a single contract, maybe, but remember that the counterparty is usually a market maker who doesn't take directional risk, their game is to bet that the cost of delta hedging is less than the premium they collect, and that's more of an implied vs realized volatility thing than a directional thing. Even if we took it for granted that Michael Burry was smart money, to a first order approximation the dealers don't care and would be happy to earn fees for managing his leverage.
To make the math easy, let’s assume it’s a PLTR 200 strike put expiring in February 2026. Each put is $20,000 notional so 10,000 puts would be $200M notional.
Feb PLTR 200Ps are trading for $3k or so each, so it would be $30M in premium for $200M notional with an in-the-money put.
If a market maker sells one 200P (52 delta) they are functionally long 52 shares, so they hedge by selling short 52 shares (or selling a call with 52 delta). If he has 10k contracts then the MM that sold the puts would be functionally long 520,000 shares and would need to short that many deltas to hedge.
Avg recent trading volume for PLTR is ~50M shares a day; 10,000 (50 delta) puts is roughly equal to 500,000 shares and be about 1% of a day’s trading volume.
Tl;dr: He’s holding 10k to 50k put contracts, depending on the moneyness and expiration date.
Options theory typically starts with European non-dividend paying options for simplicity. PCP applies to American-style options on dividend-paying stocks, you just get a solution with pairs of inequalities defining bounds. That leads to similar arbitrage and conversion mechanics with similar implications for market participants.
They are only selling puts...that's a half-hearted short. They have the resources to borrow shares and bag the whole amount without a time constraint...why not do that?
It is commonly referred to as a ‘short position’, though it is not ‘shorting the stock’. Equally, purchasing calls* is referred to as a ‘long position’ (as is holding the equity).
edit: smallmancontrov below pointed out that I wrote 'purchasing puts' was long, when I meant to write 'purchasing calls'
It’s all a matter of perspective I suppose, and of course I understand why you say this, but no professional options trader I’ve ever met would speak in these terms.
