Bill Ackman was terrified about what would happen to the markets in February 2020 so he placed a bet against $64.7 B of investment grade bonds. This bet was through credit default swaps (CDS). CDS essentially allow a buyer to buy insurance in case a bond defaults. However, sometimes traders buy this insurance without owning the underlying bond.

This is what Michael Burry did in his famous 2007 ?big short? manoeuvre. Ackman pulled off a similar big short, which we call Big Short #2. Despite the funny sounding name, this trade took only about 1 month to pay-off $2.6 B. Burry?s trade took several years so it could have cost his fund a lot of money if the bet didn?t eventually go his way. So which trade do you think was better?

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