3 ms·
> high IVs. You’re paying for that. Glad to see someone say it. A lot of people have a hypothesis about the market, but fail to do the follow through to see if
by roadside_picnic 1y ago
> high IVs. You’re paying for that.
Glad to see someone say it. A lot of people have a hypothesis about the market, but fail to do the follow through to see if the market has already priced that in. The real aim should be to see when your model (mental or mathematical) prices things differently than the market.
In this case, it's actually quite reasonable to believe that the market has over priced the risk no matter how "sure" anyone is that these companies are over valued. It's entirely reasonable to pay for an option that you think reflects an unlikely scenario, but you also believe is mispriced notably by the market.
- drob518 1y agoWith options, the market has nearly always priced in the obvious risk. But not the non-obvious risk. Burry is not just saying, “I think these companies are overvalued.” Rather, he’s saying, “I think the bubble is about ready to pop.” While many people see the bubble, Burry is making a bet on the timing of the pop.
- geoka9 1y agoYeah, my (limited) understanding is that the GP's argument would be valid for an options trader who looks for pricing inefficiencies to take advantage of (regardless of bullish/bearish outlook) but not _that_ important for someone betting on a black swan event?
- ferrouswheel 1y agoYup, and the further out the expiry date for puts, the higher the price you pay. I looked into it and it's not that cheap - and feels like the market is already pricing in risk of a large correction. But you can still make a lot of money if you time it right.