OK who just made $200mn shorting Nvidia ahead of Jensxit?

{"text":[[{"start":8.96,"text":"What. A. Story. If it hadn’t already been appropriated by another context we’d call the whole saga Jensanity. But a quick recap is that the head of a gaming chip company couldn’t keep it in his pants, and now the whole global economy is at risk."}],[{"start":25.72,"text":"What Alphaville had missed but the clever people over at Macro Risk Advisors had spotted was that someone on October 12 entered into a bunch of heavily out-of-the-money put contracts on Nvidia that expire in January."}],[{"start":38.12,"text":"Specifically, MRA’s Joseph Niles says the mystery trader bought 180,000 puts with a strike price of $150 and sold 280,000 puts with a strike price of $100, which meant the trade cost about $8mn to enter."}],[{"start":54.28,"text":"But the collapse in Nvidia’s share price since October means that the trade has now made approximately $196mn — roughly 24 times the initial premium paid, according to MRA’s calculations."}],[{"start":null,"text":"

"}],[{"start":66.84,"text":"Just in case anyone has clicked through thinking puts are for track-and-field, let’s unpack this a little."}],[{"start":72.14,"text":"Puts are a kind of financial derivative contract known as an option. Call options give the holders the right but not the obligation to buy the underlying security at a pre-determined price before the contract’s expiry, while put options give you the right to sell the security, also at a preset price."}],[{"start":88.6,"text":"Because you just pay an upfront premium for these options, it can be a way of making very aggressive bets on a stock going higher (calls) or lower (puts). Imagine if an investor bought a put on a stock trading at $100 with a strike price of $80. If the stock stays around $100 then the put expires worthless. But if it plummets to, say, $40, then the put holder makes bank, because they have a right to sell a $40 stock for $80."}],[{"start":113.76,"text":"In this case, our mystery trader both bought puts with a strike price of $150 — compared to the $226 that Nvidia’s stock was trading at on October 12 — and partly funded the trade by selling an even bigger batch of puts with a strike price of $100. They paid a premium for the first contracts, and received it for the latter batch, for an estimated net cost of $8.32mn."}],[{"start":139.08,"text":"Both put contract trades were heavily “out of the money”, ie the chances of Nvidia’s shares falling that far by the January expiry looked vanishingly small, so the $150 puts cost relatively little to buy, and were partly recouped by selling the $100 puts."}],[{"start":156,"text":"In other words, our mystery trader would make a bundle of money if Nvidia’s shares started sliding closer to the $150 mark, and would potentially be on the hook if they started falling to the $100 level referenced by the puts they sold."}],[{"start":169.96,"text":"Right now, Nvidia shares are in the trade’s sweet spot at about $166 . . ."}],[{"start":null,"text":""}],[{"start":175.84,"text":". . . which has increased the value of those 180k worth of $150 put contracts by over $200mn, as the greater chances of them expiring in the money have exploded."}],[{"start":185.84,"text":"For those interested in the Greek letters that derivatives people use to denote various aspects of options, the net notional delta of the trade has ballooned to nearly $1bn from just over $90.6mn at entry. The theta — the rate of decline in an option’s price as it approaches its expiration date, other things equal — is -$880,000 a day. Options are fun, aren’t they?"}],[{"start":209.92,"text":"Anyway, as you can see from the MRA chart above, the absolute maximum profit that the trade can make is about $892mn, and it can in theory lose money if Nvidia trades significantly below $100 — as the trader would lose even more money on selling the $100 puts than they make from buying the $150 puts."}],[{"start":229.56,"text":"But MRA’s Niles calculates that the trade will make money as long as Nvidia trades between $11.46 and $150.46 by the time the options expire on Jan 15 (though the person or firm who first entered into it could and probably should sell the contracts to crystallise the gain before the contracts end)."}],[{"start":251.64,"text":"At pixel time, pre-market trading indicates that Nvidia will open a little bit higher today, at ca $168, but it doesn’t feel like this saga is over, does it?"}],[{"start":267.04,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1794579820_2809.mp3"}