Burry adjusted his bets on a market decline. Which stocks did he buy and sell?
Investor Bets on a Decline in the Tech Sector, Holds onto Put Options on Palantir, and Increases Investments in Mortgage Giants
An investor is considering a return to the strategy used in the late 1990s and selling even undervalued stocks / Photo: FotoField / Shutterstock.com
Renowned short seller Michael Burry reported on his blog, Cassandra Unchained, on October 11 that he had once again repositioned his bets on a market decline, focusing them on put options on the Nasdaq-100 index and the SMH semiconductor fund. The investor is thus preparing for a reversal that he himself has predicted: in his view, the bull market will peak within the next nine months.
To bet on a decline in the Nasdaq-100 (NDX) index, Burry chose put options with an expiration date in April 2027 and a strike price approximately 20% below the index’s current level. This timeframe aligns with his forecast of a market reversal, and thanks to low volatility, the options are relatively inexpensive.
The investor concentrated his bets on a decline in semiconductor company stocks in put options on the VanEck Semiconductor ETF (SMH) with an expiration date in June 2027 and a strike price approximately 20% below the fund’s current price. SMH’s largest holdings are Nvidia (19.6%), Taiwan Semiconductor (9.3%), and AMD (5.6%).
Burry closed his short position in Palantir: half of it back in June, and the remainder when he switched to put options on the company’s shares with an expiration date in September 2027. Since June, Palantir’s stock has doubled in price and reached a new all-time high. The investor does not rule out further sharp growth, but considers the decline in trading volume a sign of weakening buyer demand.
Burry also made a trade outside the artificial intelligence sector. He sold all of his common shares in the mortgage companies Fannie Mae and Freddie Mac and, in their place, purchased five series of junior preferred shares, increasing the weight of these companies in his portfolio to 8–10%. Burry expects a return of up to 290% if, once the companies are no longer under government control, dividends on the preferred shares resume and their value returns to par.
Following a sharp rise in the stock price of cloud software developer Veeva Systems, Burry decided to partially hedge his position against a potential decline in the stock price: he sold call options on his entire stock position with an expiration date in November 2026 and a strike price roughly at the current level.
Burry continues to hold put options on Oracle, insurer MetLife, and construction and mining equipment manufacturer Caterpillar, all with expiration dates in December 2027, January 2029 and December 2027, respectively. The strike prices of all three options are significantly below the current stock prices.
Burry also maintains holdings in the healthcare provider Molina Healthcare, online retailer Temple & Webster, footwear manufacturer Birkenstock, healthcare provider HCA Healthcare, footwear and apparel manufacturer Deckers Outdoor, software developer Adobe, mining company Ero Copper, and fintech company Fiserv.
Over the next 6–9 months, Burry intends to limit losses on his long positions while maintaining maximum leverage for bets on a market decline. He is considering a return to the strategy he used in the late 1990s: at that time, stock indices were still rising, but an increasing number of stocks were becoming cheaper, including shares of undervalued companies. Burry sold them when they hit new lows to avoid even greater losses.
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