According to CNBC, Michael Burry’s hedge fund Scion Asset Management held about 50,000 put contracts on Palantir and 10,000 on Nvidia at the end of the third quarter. The disclosure unnerved investors and exacerbated a sell-off in AI names on Tuesday. Palantir CEO Alex Karp called Burry’s wagers “super weird” and “batsh– crazy.” However, market veteran Jon Najarian believes both positions are likely deep in the red. Nvidia would need to drop another 7% and Palantir another 5% for Burry’s trades to break even. Burry also filed his holdings roughly a week earlier than the usual 13F deadline, which stood out for an investor who typically waits until the final day.
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Timing is everything
Here’s the thing about shorting tech stocks – you can be right about the fundamentals but still get crushed on timing. Burry‘s positions were established before the end of September, and both stocks have been higher since then. Even if he bought puts at Palantir’s absolute highs in August, he’d only briefly approached breakeven during Tuesday’s decline. And that doesn’t account for time decay eating away at option value over the past month.
Basically, shorting momentum stocks is like trying to catch a falling knife while blindfolded. The market can stay irrational longer than you can stay solvent, as the old saying goes. And right now, the AI trade still has plenty of believers despite stretched valuations.
The early filing mystery
Now, why would Burry file his positions early when he usually waits until the deadline? Najarian thinks it might be deliberate – with markets looking stretched, Burry may have wanted to broadcast his caution before any potential rebound made his short bets appear poorly timed. It’s a classic case of trying to influence sentiment rather than just reporting positions.
But here’s the kicker: these positions might not even be active anymore. The filing only shows what he held at the end of September, and Burry has been known to move quickly in and out of high-profile trades. So we might be getting worked up over positions that no longer exist.
Bubble spotting vs bubble profiting
Burry’s cryptic X post last week said “Sometimes, the only winning move is not to play.” That’s probably feeling pretty relevant right now. Spotting a bubble is one thing – profiting from it is another entirely.
Remember his “Sell” warning in early 2023? The market proceeded to rally significantly as the AI boom ignited. Being early is often the same as being wrong in trading. And when you’re dealing with industrial-grade computing power driving this AI revolution – the kind that requires rugged industrial panel PCs from leading suppliers – the fundamental demand might be more resilient than short-sellers anticipate.
So where does this leave us? Burry’s warning against market euphoria might still prove correct eventually. But for now, his high-profile short bets look more like expensive market commentary than profitable trades. Sometimes the biggest risk isn’t being wrong – it’s being right at the wrong time.
