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Yeah I feel like 200m of PLTR put options would distort the market so much the contracts would struggle to overcome their own premium. They must be referring t

Yeah I feel like 200m of PLTR put options would distort the market so much the contracts would struggle to overcome their own premium. They must be referring the the value of the shares the contracts represent?

smallmancontrov 1y ago
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.
- the-grump 1y ago
  Yeah what usually happens is they match it with call purchases and thus they are not actually your counterparty economically. There is enough bullish momentum that a trade of this size can actually be placed (of course in chunks).
JumpCrisscross 1y ago
> PLTR put options would distort the market Puts are calls and calls are puts [1]. On a certain level, all options of a given expiry and underlying are shadows of the same object. [1] https://en.wikipedia.org/wiki/Put%E2%80%93call_parity https://en.wikipedia.org/wiki/Put%E2%80%93call_parity
- stevefan1999 1y ago
  Only applies to European Options
  - JumpCrisscross 1y ago
    > Only applies to European Options Absolutely false. 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.
quickthrowman 1y ago
It’s $200M notional. 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.

smallmancontrov 1y ago

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.

the-grump 1y ago
Yeah what usually happens is they match it with call purchases and thus they are not actually your counterparty economically. There is enough bullish momentum that a trade of this size can actually be placed (of course in chunks).

JumpCrisscross 1y ago

> PLTR put options would distort the market Puts are calls and calls are puts [1]. On a certain level, all options of a given expiry and underlying are shadows of the same object. [1] https://en.wikipedia.org/wiki/Put%E2%80%93call_parity https://en.wikipedia.org/wiki/Put%E2%80%93call_parity

stevefan1999 1y ago
Only applies to European Options
- JumpCrisscross 1y ago
  > Only applies to European Options Absolutely false. 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.

quickthrowman 1y ago

It’s $200M notional. 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.