Bank Run In Silicon Valley

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“You got it all wrong, Joe. Your money isn’t here right now. It’s in Franks bullshit startup, and 100 other completely worthless ideas.” –Eddy Elfenbein, riffing on the classic scene in “It’s a Wonderful Life”.

So Much For Effective Altruism 

In Frank Capra’s 1946 classic movie “It’s A Wonderful Life”, George Bailey quells a run on his bank by explaining to his depositors that their money is in the value of each other’s houses, and he convinces them to take just the money they need rather than pulling all of their deposits. 

Knowing of Silicon Valley’s fondness for “Effective Altruism“, and the importance of The Silicon Valley Bank to their industry, I wondered this week if we’d see venture capitalists lined up in front of Silicon Valley Bank branches with $250k cashier’s checks in hand to open CDs there, to boost confidence in the bank. Instead, they did the opposite, encouraging the CEOs of their portfolio companies to pull all their assets out of the bank…

And calling for a Federal bailout.

What Happens Next 

It looks like the damage is going to ripple outward from the collapse of The Silicon Valley Bank. Serial startup founder Brad Hargreaves sketched out some of the mechanics of that in this thread. 

Trading The Collapse

Since this was sparked by the announced winddown of Silvergate Capital Corp. (SI), one of my first thoughts Wednesday night was that it might not be too late to make some money betting against Silvergate. In the Portfolio Armor trading Substack, we bought puts on SI when it was trading at around $3 per share on Thursday. SI closed at $2.52 on Friday. 

My second thought Wednesday night was to bet against The Silicon Valley Bank’s parent company, SVB Financial Group (SIVB). I figured that stock would drop about 30% on Thursday and set limit orders on puts accordingly. Of course, it fell by more than twice as much, and those orders didn’t get filled. 

Similarly, other limit orders on potential dominoes didn’t get filled on Friday, as prices got away from us, but we did take advantage of the downturn to exit our Carvana Co. (CVNA) trade for a 51% gain. 

Currently, I’m researching some less obvious potential dominoes. If you’d like a heads up when we place a trade in one of them, feel free to sign up for the Portfolio Armor Substack/email list here