Hedge Fund Margin Call Creates HUGE STOCK CRASH!!! What I'm Doing To Profit
Some stocks have recently crashed because of a hedge fund margin call... here are the opportunities I see and how I am taking action
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Overleveraged hedge fund Archegos recently faced a margin call over their long positions that moved against them. As a result, the prime banks offering the leverage sold off the fund's holdings to recoup their losses. This resulted in a huge wave of selling in certain stocks, making some crash over 50% in a couple of days. Stocks such as VIAC, SHOP, DISCA, BIDU, IQ, and more all saw huge crashes as the fund had to dispose of the positions.
When this kind of forced selling happens, I always like to take a look at the companies affected to see if there are any opportunities to take advantage of. With the high volatility from the stock market crash, I decided to take a look at the options chain to be a net option seller, to collect option premium.
For example I looked at VIAC stock. The stock crashed from over $100 to around $46, and people are panicking. I think Viacom is a great company, and trading at 11x earnings they are certainly cheap compared to the rest of the market.
But instead of buying VIAC shares in the open market, I decided to look at the options chain. To take advantage of the volatility I want to be an option seller, not a buyer.
Taking a look at the may expiration, Selling cash secured puts at a $35 strike would get you $100 in premium per contract. I think this is a very good risk/reward scenario. In the event VIAC sell off ends and the stock bounces back, you are obligated to do nothing and keep the premium. If VIAC keeps crashing, you buy the stock at $35, which I think is a good price with a built in margin of safety to buy the company.
So this is what I am thinking about doing. Obviously you could do this with any of the other stocks affected by this sell off, and there are dozens of other ways to play this with options as well.
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