American investor Michael Burry has bet against Cathie Wood’s flagship fund ARK Innovation ETF (ARKK). For those who don’t remember; Michael Burry is the guy who hit the big jackpot in the 2008 US mortgage crisis; where he played down mortgages by buying credit default swaps.
Burry bought almost $ 31 million worth of put options to sell 235,500 shares of the Ark Fund. Despite the fact that the share of this position is small (1.5%); this news managed to shake up the front pages of the financial press.
What’s more, Burry isn’t the only one who believes the ARK Innovation ETF’s price is heading downward. The volume of put options on the ETF is increasing; and the short interest fund Wood is at a record high: nearly 13% of the outstanding shares are in a short position.
As of the time of writing, the Ark Innovation ETF is down 2.51% to $ 117.09 amid a general decline in tech stocks. Tesla shares are down 4.98% to $ 681.43 due to an investigation initiated by the US regulator after a series of incidents with the electric car’s autopilot system.
It should be noted that earlier he indirectly played against Wood, shorting Tesla; one of the top shares of ARK Innovation.
It turns out that Michael Burry determined to drop Tesla shares. In general, time will tell who is right and who is wrong.
What are put options?
An option is a contract by which a buyer gets the right to buy or sell an asset (for example, stocks, ETF securities, or gold futures). The contract allows in the future to sell or buy an asset at a predetermined price (called the strike price) and at a certain time. The date until which the buyer of the option has the right to exercise his right is called the expiration date.
There are two types of such contracts – put options and call options. The first of them gives the right to sell the asset at a predetermined price, and the second – to buy. A put option usually chosen by those who are waiting for the price of a share or other asset to fall.
Cathie Wood responded to Michael Burry on social media
After Burrie filed for a short position, Wood questioned his understanding of the innovation space.
«To his credit, Michael Burry made a great call based on fundamentals and recognized the calamity brewing in the housing/mortgage market. I do not believe that he understands the fundamentals that are creating explosive growth and investment opportunities in the innovation space», wrote Wood on Twitter. Note that Cathie Wood made a name for herself in 2020; when in the wake of the growth of the technology sector, the ARK Innovation fund grew by almost 150%; as the fund had large stakes in companies such as Zoom and Teladoc; which became the beneficiaries of the pandemic and restrictions. According to FactSet, the fund’s assets under management now amount to about $ 22.5 billion.