The man above made billion shorting the market in March during the Covid-19 pandemic. Although not good for the stock market, world economy and such when the market crashes. But for some investor like him this was an opportunity to make it big. As you can read above in the image (from youtube) how Bill Ackman turned $27 million into $2.6 billion. Somewhere in early or mid March (don’t know the exact time frame) he bet the stock market that it will go down. Eventually it did for a short time. And closed his position (I think toward end of March) for billions. That’s almost 100 times the investment. He was able to do so using financial instrument known as credit default swaps (CDS). Also he knew that after the short period of market being down it would gradually go up. So he purchased more blue chip stocks to go up.
In hypothesis, let’s say that I bet the market with $2,700 and made $270,000 i.e. if I was right I would make 100 times. But in reality, I can not use CDS. Its impossible for individual like me because it is expensive and requires tens of millions of regular monthly payment. Only the big finance institute and hedge fund management company alike have the privilege of using CDS.
One way to make big without CDS is buying option. There is one guy who he calls himself wsbgod. He is quite infamous for making TESLA bet. Long story short, he put $47,000 and made $4.7 million around February. And made another roughly the same amount totaling $8 million this time betting TESLA to drop.
So how do the billionaire like Bill know when to short the market? Simple. When suddenly the world is in panic (of pandemic) any investor would see this coming miles away or sometimes few hundred metres i.e. market is about to go down. If only I had been paying attention, I would have done the same (bet stock market to fall). At the time my mind was preoccupied. Anyway, I thought to myself maybe its not too late. Here comes the fomo. 🤣
Now get in there
I am not a millionaire (yet) by any means may be a hundred-naire 🤣🤣🤣 as I only have a measly amount of money.
On 2 April, I logged on to my firsttrade broker account then placed 1 x $4.03 contract order of put S&P 500 ETF 225 strike price, expiring 17/04/20 at a cost $403.04 ($4.03 premium x 100). At the time SPY was trading at $148. I would make money if the SPY closes at or below 225 strike price.
50/50 probability
And over the next few days SPY started to climb up just when I thought it would go down and retest that previous low price at around $225. When 17/04/2020 expiration date came, SPY went on to close the trade at $286 of North. Since put option loses value when the price increases. Therefore my SPY put option premium which I bought for $403.04 OTM (out of the money) was worthless, in other word $0. 😭😭😭See below daily price chart.
