"50 Cent" volatility bets netted $200 million for one trader
The upheaval in the stock market last week proved to be lucrative for one unidentified trader nicknamed with rapper Curtis Jackson in mind by Pravit Chintawongvanich, head of derivatives strategy at Macro Risk Advisors.
A mysterious buyer the analyst dubbed "50 Cent" bought out-of-the money options linked to the CBOE Volatility Index (VIX) for about 50 cents each -- and has raked in almost $200 million all told on the trade since the beginning of last year, due to a swing of $400 million in one month. That's according to Chintawongvanich estimates in an accounting first reported by Bloomberg News.
"At one point, '50 Cent' became '30 Cent,' scrimping on his usual VIX option purchases, unwilling to pay up for the 50 cent VIX options that were his namesake," Chintawongvanich wrote in a client note. "But in early February, when it seemed like Fiddy's fortunes could go no lower, it came: redemption."
The VIX jumped almost 116 percent last Monday to 37.32, then topped 50 for a brief period the next day, taking it to its highest level since 2015.
Still, the money made from the VIX option purchases could be bittersweet. The analyst theorizes that the calls could be a route taken by a big portfolio of risk assets looking to protect earnings against a market selloff.
"We think the reason '50 Cent' was so adamant about paying a fixed price (50 cents) on a fixed number of contracts (50,000) is because they had a fixed hedging budget for the year," Chintawongvanich wrote.
The recounting of the lucrative trading comes amid a report that at least one regulator is eyeing price manipulation related to VIX.
Citing people with knowledge of the matter, The Wall Street Journal reported that the Financial Industry Regulatory Authority is reviewing if traders bet on S&P 500 options to sway prices for VIX futures.