Michael Burry’s Big Bet Backfires? 🔥 Jon Najarian Breaks Down his PLTR & NVDA Puts

Key Concepts

• Puts: Options contracts that give the buyer the right, but not the obligation, to sell an underlying asset at a specified price (strike price) on or before a certain date.
• Call Spread (Bullish Call Spread): An options strategy involving buying a call option and selling another call option on the same underlying asset with the same expiration date but different strike prices. It's a strategy used when an investor expects a moderate rise in the price of the underlying asset.
• Time Decay (Theta): The erosion of an option's value over time as it approaches its expiration date. This negatively impacts option buyers and positively impacts option sellers.
• Rolling Options: Adjusting an existing options position by closing out the current option and opening a new one with a different expiration date or strike price. This is often done to extend the time frame of a trade or to adjust the profit/loss potential.
• Multiples (Valuation Multiples): Financial ratios used to compare the value of a company's stock to its financial metrics, such as price-to-earnings (P/E) ratio or price-to-sales (P/S) ratio.

Discussion of Dr. Bur's Trades and Disclosure Timing

The conversation begins with a discussion of significant put option purchases made by an individual referred to as "Dr. Bur."

• Specific Trades:
  • 50,000 puts in Palantir (PLTR), controlling 5 million shares.
  • 10,000 puts in Nvidia (NVDA), controlling 1 million shares.
• Disclosure Timing: These trades were declared in Dr. Bur's Q3 filing, which closed on September 30th. However, he was not obligated to disclose this information until November 15th.
• Argument for Early Disclosure: The speaker, John Narian, suggests that Dr. Bur disclosed these trades early because he is "underwater" on them, meaning the current market price of the underlying assets is higher than the strike price of his puts, resulting in a loss. The "clock is ticking" due to time decay, which further erodes the value of his put options.
• Impact of Time Decay: Narian emphasizes that time decay (theta) "always hurts the option buyer." He uses a George Costanza analogy to illustrate that this "shrinkage" is detrimental to option buyers, who need significant price movement to profit.
• Palantir's Performance: For Palantir, the stock price on the day of the discussion had fallen to its closing price on September 30th. This indicates that Dr. Bur is not making money on this trade, especially considering the impact of time decay.

Analysis of Other Notable Trades

The discussion then shifts to other observed unusual options activity.

• NextGen Energy (NXE) - Bullish Call Spread:
  • Strategy: Someone bought an at-the-money call and sold a call above the market in NextGen Energy.
  • Company Focus: NextGen Energy is described as a uranium player that extracts uranium from the ground in Canada. The speaker also mentions interest in US uranium companies.
  • Observation: This activity was flagged as "unusual activity," prompting Market Rebellion to focus on NXE.
• Bank of America (BAC) - Bullish Call Roll:
  • Strategy: A "bullish call roll" was observed. This implies that someone who was correct on a previous trade rolled their position up by $3 to $4.
  • Execution: The trade was rolled "yesterday," giving the trader "a lot of time to be right."
  • Significance: The speaker expresses a preference for following traders who are demonstrably "right" and still have a "hot hand."

Outlook on AMD and Qualcomm

The conversation turns to specific stock recommendations and market outlooks.

• Advanced Micro Devices (AMD):
  • Positive Outlook: Charles, the host, expresses a bullish view on AMD, believing it will trade higher.
  • Call Option Potential: He suggests that call options on AMD could be a good play for both himself and viewers.
  • Competitive Positioning: AMD is seen as doing "almost everything right."
  • Valuation: AMD is considered to be in a "great position" because it is not trading at the same valuation multiple as Nvidia. The speaker owns Nvidia but prefers AMD's multiple.
• Qualcomm (QCOM):
  • Earnings Anticipation: Qualcomm is expected to release its earnings after the bell on the day of the discussion.
  • Competitive Landscape: Qualcomm is identified as a competitor to AMD, Intel, and Nvidia in the data center chip market.

Conclusion and Key Takeaways

The segment concludes with an appreciation for the insights provided. The main takeaways revolve around:

• The importance of analyzing options activity: Unusual put purchases, especially when disclosed early and when the underlying asset is underperforming, can signal potential trouble for the trader.
• Understanding options strategies: Concepts like bullish call spreads and rolling options are crucial for interpreting market movements and identifying potential opportunities.
• The impact of time decay: Option buyers must account for time decay, which erodes option value as expiration approaches.
• Valuation matters: Comparing valuation multiples between competitors, such as AMD and Nvidia, can reveal relative investment attractiveness.
• Following informed traders: Identifying and learning from traders who have a track record of success can be a valuable strategy.