How Brownfield Capital turned 100k into 30 million in the Big Short

Hey guys, I know a lot of people are big fans of The Big Short and are familiar with the fact that Charlie and Jamie turned 100k into 30 million. This is a ridiculously obscene level of return that seems unbelievable. However, it is completely real and this is how they did it.

So basically Charlie and Jamie found huge opportunities in leap options because of how they were priced on stocks with big events.

For example, capital one financial was a trade in which they netted around half a million dollars off of just 26k invested. Capital one was under investigation because of supposed fraud regarding mortgage loans. The investigation had tanked the stock since a big part of their business could be deemed fraudulent and may have to shut down. Charlie and Jamie did the analysis and decided that if Capital one was found not fraudulent then the stock was worth a good bit more than what it was trading at. You could have bought shares and made decent money but Charlie and Jamie bought leaps since they were pricing in the chance that the company was fraudulent and were thus extremely cheap. They took the risk and bought 26k of leap options which would likely expire worthless if the company was fraudulent. However, risking 26 k was worth it since if the company was not fraudulent then the options would be repriced like the decent business capital one was. They took a 26k bet and it paid off.

Events like fraud investigation are often binary: If the company is fraudulent, major parts of the business have to be reworked or shut down which destroys business value. If the company is not fraudulent, the business continues on without any real change in value. Options obviously cannot perfectly price a company as being both fraudulent and successful so they are left in some sort of gray area. Taking risks in this gray area is what Brownfield did and how it became successful.

Ultimately, they repeated this strategy many times. Not always just on matters of fraud but really any event that would cause a strong directional move in the share price off of one event.