George Soros Increases His S&P 500 Put Position to $1.1 B

zxnk

Maybe a hedge, may be a big bet



May. 20, 2015 5:06 AM ET  |  4 comments  |  About: SPDR S&P 500 Trust ETF (SPY), Includes: IWM
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
Summary

George Soros had $1.1 billion worth of SPY puts at the end of March.
He also had $177 million worth of IWM puts.
Soros is likely preparing for a correction.
By Jay Smith

The latest 13-F's are out, and George Soros is short the S&P in a big way. According to the latest regulatory filings, Soros had $1.1 billion worth of S&P 500 ETF (NYSEARCA:SPY) puts and $177 million worth of Russell 2000 ETF (NYSEARCA:IWM) puts at the end of March. Soros' SPY put position is a 559% increase from his put position last quarter while Soros' IWM put position is a new position. The notable rise in Soros' index puts shows that the legendary investor is concerned that the 6 year old bull rally might be due for a pullback.

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There are many indications that the market is overvalued. The S&P 500's PE ratio of 20.81 is higher than the S&P 500's historic mean of 15.54 and historic median of 14.58. The Tobin Q ratio, which calculates price to replacement cost, is the highest it has ever been with the exception of 1929 and the internet bubble. The S&P 500's forward PE of 18 is also not cheap. Given that a rising dollar decreases international earnings, 2016 S&P 500 earnings may not meet analyst expectations.

The Federal Reserve also thinks that the market is expensive. Federal Reserve Chairwoman Janet Yellen said on May 6th that stock valuations were 'quite high'. Given that many believe the Federal Reserve will begin raising interest rates by the end of 2015, the market could correct sharply as the easy money punch bowl is finally removed.

While the S&P 500 is overvalued and may be due for a correction, there is no guarantee that the bull market will end anytime soon. Markets can stay overvalued for a long time. The S&P 500 traded consistently above 20 times earnings in the late 90's and early 2000's. History also shows that the markets can continue to rally while interest rates rise. According to Citigroup analysts, it typically takes 3 or 4 rate hikes before monetary tightening chokes off a bull market. Given that the Fed has yet to enact its first rate hike, the S&P could continue to rally in 2015 and perhaps into 2016.

Moreover, although Soros had a large SPY put position at the end of March, Soros might have changed his put position between March and now. Soros is famous for trading on intuition and has been known to change his mind on positions in a short time. Soros could also be buying puts to hedge his long exposure at a time when volatility is cheap.

While many predictions that George Soros makes come true because they are self-fulfilling prophecies, the current bull market can continue even with Soros hedging his position. The U.S. economy is still recovering and the Fed is still accommodating. The market has a degree of momentum that is difficult to stop. A moderate pullback for a bull market is also not a bad thing, as it gives time for valuations to become more attractive.

Additional disclosure: Insider Monkey's editor, Meena Krishnamsetty, has a long position in SPY.

chinesebuffet

这么猛？

我今天清仓！不论涨跌！

当尊重前辈！

chinesebuffet

.他老人家应该是入市过早被套住了！

Yuhou