Inflation bet

Discussion in 'Trading' started by qlai, Nov 25, 2021.

  1. qlai


    Could someone explain this trade to me in layman’s terms? Short bonds, sell OTM puts?

    “Pershing Square made its bet with options, taking a notional short position principally in shorter-dated maturities of U.S. Treasuries, as well as some longer ten-year dated debt, Ackman said.

    “We were able to set up a bet like that on an out-of-the-money basis very, very cheaply — very much like credit default swaps; but in this case, not swaps but options,” he explained.“
    Nobert likes this.
  2. Short bonds because if you have inflation at some point the CB is going to have to raise rates => bonds go down.

    Sell OTM puts because markets don't go down.
  3. qlai


    I don’t think he sold puts on stocks. That would not be a good trade, imho.
  4. Maybe he sold puts where he wants to cover his bond short? I dunno.
    qlai likes this.
  5. thecoder


    I think your definition of "OTM puts" differs from the textbook definition. Please check.
  6. thecoder


    I would say betting on all involved markets going down, ie. classic shorting in general.
  7. OTM put = selling puts below market price. Maybe it's some sort of a put debit spread.
  8. qlai


    I assume he sold puts on bonds so that if they go down, he just takes assignment at those levels. I think it’s same kind of trade Buffet did with stock indices when they crashed, except he didn’t short.
  9. thecoder


    Oops, it seems I mixed it up :), sorry for the caused confusion.
  10. traider


    The fair put strategy trumps all others. Don't get distracted.
    #10     Nov 25, 2021