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Saturday, February 15, 2014

Soros Reloads SPY Puts, $1.3B Bet On S&P 500 Decline

Some may recall I broke the news last August (in advance of others who covered the story) that Soros had substantially increased a position in SPY puts (recorded in the Q2 2013, 13F filing), essentially a bet that the stock market will head lower:
What isn't yet making headlines (and probably won't on mainstream finance news sites) is that the largest position the fund now holds is SPY Puts, basically a term bet that the stock market is headed lower (although we don't know the exact structure of target dates and prices). The position (SPY Puts) relative to the total size of the fund increased from 1.28% to 4.79% over Q1 (more than tripled) and has increased to 13.54% over Q2 (almost tripled again).

Soros reportedly made $1 billion betting against the British Pound in 1992. We heard rumours of Soros making a $1 billion bet against the AUD (a position that has done well if true). We heard when he made $1 billion betting against the Yen. Where are the headlines for his $1.25 billion bet against the stock market? Bullion Baron
This position was substantially reduced in Q3 2013, falling from 13.54% of the fund to 5.14%.

However, the 13F filed today shows that Soros has reloaded his SPY put position. The Soros Fund Management LLC bought an additional 4,295,900 SPY put shares (153% change over the previous quarter), keeping it's spot as the largest position in the portfolio (as of 31st December, 2013) at 11.12%. While as a percentage of the portfolio it is slightly lower than in Q2, the value of the consideration is some $60 million higher at $1.3 billion.

Of course the position may just be a hedge & being six weeks into the next reporting period it's possible that the position has been reduced (or increased!).

Here is a summary of the 13F changes for Soros' SPY puts position over the last few years:

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SPY closed Friday at 184.02, just a fraction lower than the price on December 31st (184.69), however traded 6% lower in early February.

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The second and third largest positions reported in the 13F are a new put position on the Energy Select Sector SPDR Fund (XLE). The market value of this position is almost $400 million and accounts for 3.38% of the portfolio. And a 158% increase in TEVA (Teva Pharmaceutical Industries Ltd., the world's biggest maker of generic medicines), which has seen a substantial rise in price since the reporting period finished.

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23 comments:

  1. I think the problem is that 1.3 Billion just doesn't seem that big anymore. As KD points out we've been de-sensitized to the big numbers. Will be interesting to see if Soros is right though, about the direction.

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  2. That's true, it's not big money in the grand scheme of things. But if it reflects Soros' expectation (rather than just a hedge), it is an interesting insight into the mind of a man who has mad some larger than life and scarily accurate bets in his time.

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  3. Expectation? Soros is J lightning on a grand scale. The British pound didn't have to die by his hands.

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  4. What are the stike prices and months of expiration of the puts?

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  5. Unfortunately such details of the position are not available.

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  6. I have always traded the SPX options, and have never traded SPY. This is because I started years ago before the ETF existed. I am a small fry compared to Soros, as most all people are, but when I buy options I usually buy deep in the money to eliminate the time premium as much as possible. Thus, for a SPX put, I usually go 100 to 200 points in the money so that each put costs about $10,000 to $20,000 each. I also like to go out 2 to 4 months to expiration time, and have gone out up to 9 to 12 months. This way, if I am wrong, in that the market goes nowhere, I get most or all my money back, instead of losing it all in out of the money puts or calls, usually puts. I can imagine in my mind, since Soros is buying over a $ billion of SPY puts, that he is going deep in the money and several months to a year or two out in time, balancing those two variables with a liquidity constraint. That way, if he didn't cash out the three different times during 2013 that the SPY took about 5% dumps , he still can liquidate and preserve his money, to go another round in the future. Also, for all we know, he dumped much of his SPY puts in the mid January to early February downdraft for some huge profits.

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  7. What is "J lightning", excuse my ignorance?

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  8. Could have done (sold all or some of the position), however really depends on when during the 4th quarter they were accumulated (re huge profits).

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  9. Is there a future filing that he will be required to make, in which those details will need to be disclosed?
    If so, when can we see it? :-)

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  10. Ya, What's 1.3 Billion ! The American increases that amount in a day !!

    ReplyDelete
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  16. The skype status of Brian McConnell says he is in Algeria. Why is this so? What does he do in Algeria? He is online, but not answering in skype.

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  18. Thank you,That sounds good. You say that he was in Fort Lauderdale. What did he there? Do you know if he wants to open a silver mint in western USA? And is this a silver mint of Royal Silver Company? Do you know more.

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  19. I used to work at Royal Silver for 4 years, Brian owes me more than 6 months of pay and I quit last year. I have seen his wife and son drive around the city. His lawyer Rodrigo Claver is running the plant. Brian has his son in law in Fort Lauderdale and I do not know anything else.

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  21. It's been over a year since this article was published, and bitcoin sits at over an 800% gain since then (with a 1600% spike somewhere in there too). The intervening year has seen MUCH more VC/investor interest in bitcoin, as well as guarded interest from Wall St., ever growing merchant acceptance, and tacit acceptance/tolerance by government. More thought leaders (including a number from the precious metals space) are voicing at least cautious optimism or interest, and tech-savvy investors are reportedly jumping in aggressively. What are your current thoughts?

    ReplyDelete
  22. I wrote another post early this year in case you missed it:

    http://www.bullionbaron.com/2014/01/bitcoin-first-crypto-curreny-not-last.html
    Obviously my gut was wrong on the price last year, but I still think Bitcoin (& other cryptocurrencies) have a massive challenge ahead if they are to be more commonly accepted.

    - Government acceptance: As you mention there has been a little give here, but Bitcoin will need tax exemptions/acceptance as a currency to avoid it being an administrative nightmare with a need to measure gains/losses.

    - Mining: Bitcoin production/mining is being centralised in the hands of those who have large capital to invest in expensive technology. I think in some ways this takes away from it's humble beginnings as a decentralised currency (no single miner has control, but it's far less decentralised today).

    - Ease of use: They are still not very easy to buy & sell with fiat, this in part ties in with government acceptance, but it's hard to see Bitcoin going mainstream until it's much easier to use for the general populace.

    - Anonymity: One of my main concerns is the lack of anonymity that comes with using Bitcoin, personally I won't use it until it's much easier to transact without someone being able to trace transactions back to your wallet (and other transactions). It can be done, but really needs a killer app in this space to anonymize it further.

    - Business acceptance: As per my blog post I linked in this comment, there needs to be a greater level of Bitcoin acceptance all the way through the supply chain, rather than businesses just using services to convert payment in Bitcoin straight to fiat. There have been a couple of businesses doing so, but not enough in my mind.

    These are only a few of the challenges I had time to cover in 10 minutes, there are many more. I am also worried that Bitcoin popularity has risen at a time that it appears there are other technology bubbles around, just look at the valuations of social media stocks or the capital raised recently for an app that can only text the word 'Yo'. If this tech bubble 2.0 then it's collapse could take some of the interest and capital being raised for Bitcoin projects.
    I think Bitcoin has introduced an invaluable framework for future monetary & financial transactions, I'm just not convinced (yet) that Bitcoin will have the staying power to overcome the many challenges and hit the mainstream.

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