'50 Cent' Copycat Likely Made $170 Million Hedging During Rout





(Bloomberg) -- A million-dollar day may have turned into a hundred million-dollar month for the major buyer of U.S. equity volatility as stocks endure one of their worst sell-offs of 2019.

Late July and early August saw massive orders for protection that bore some similarities to transactions by the trader dubbed "50 Cent," who bought a boatload of derivatives that would benefit from market turmoil throughout 2017 and early 2018. The vehicle, in both cases, were call options on the Cboe Volatility Index, a gauge of the 30-day implied volatility of the S&P 500 Index based on out-of-the-money options.

Maxwell Grinacoff, derivatives and quantitative strategist at Macro Risk Advisors, compiled the theoretical profit and loss statement for this trader based on probable activity. He estimates paper and realized gains on these positions total nearly $170 million.

However, the millions in premium spent on these options suggests the position is intended to be a hedge rather than a directional bet on equity volatility. So on net, the owner might also be feeling the pain from the S&P 500's 6% pullback from all-time highs.

Many of the options purchased are poised to expire next week.

A trader who asked not to be identified has observed sales of August VIX calls at strikes where big buys had been previously made concurrent with the purchase of even further out of the money September VIX calls. Such activity would be consistent with rolling the trade to maintain protection in the event that the tumult in risk assets continues or intensifies, and may not be fully captured by the above table.

There's also the possibility that these trades are being unwound and monetized in a piecemeal fashion, in contrast to how they were first implemented.

The VIX jumped as much as 5 points on Wednesday, hitting 22.7.

To contact the reporter on this story: Luke Kawa in New York at lkawa@bloomberg.net

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Rita Nazareth, Dave Liedtka

For more articles like this, please visit us at bloomberg.com

©2019 Bloomberg L.P.

COMMENTS

More Related News

Elizabeth Warren Takes on Democratic Rivals on Fundraising in Speech
Elizabeth Warren Takes on Democratic Rivals on Fundraising in Speech

(Bloomberg) -- Elizabeth Warren took an unusually aggressive stance against her moderate rivals for the Democratic nomination in a speech billed as an economic address on Thursday."We know that one Democratic candidate walked into a room of wealthy donors this year to promise that 'nothing would fundamentally change' if he's president," Warren said, referring to Joe Biden."We know that another calls the people who raise a quarter-million dollars for him his 'National Investors Circle' and he offers them regular phone calls and special access. When a candidate brags about how beholden he feels to a group of wealthy investors, our democracy is in serious trouble," Warren said, referring to...

Boris Johnson Heads for Big Majority in U.K. Election, Exit Poll Says
Boris Johnson Heads for Big Majority in U.K. Election, Exit Poll Says
  • World
  • 2019-12-13 00:56:19Z

(Bloomberg) -- Sign up to our Brexit Bulletin, follow us @Brexit and subscribe to our podcast.Boris Johnson is on course to win a decisive victory in the U.K.'s general election, vindicating his gamble on an early vote and putting the country on track to leave the European Union next month. The pound rose.The official exit poll predicted the prime minister's Conservatives will win 368 of the 650 seats in the House of Commons -- a large overall majority of 86 seats. The main opposition Labour Party is projected to secure 191 seats, a loss of 71 since the previous election, with the Scottish National Party securing 55.If the forecast is borne out by results, Johnson's majority -- the...

Democrats Aren
Democrats Aren't Feeding the Impeachment Trolls

(Bloomberg Opinion) -- As the House Judiciary Committee continues to consider the articles of impeachment, many close observers are saying that Democrats are all too content to sit on the sidelines while Republicans slam the proceedings as a sham. That's not entirely true, of course. When Republicans argued that Congress should always defer to the courts when presidents defy House subpoenas, California's Zoe Lofgren gave an extremely strong defense of the rights of Congress, while also noting that President Donald Trump's refusal to cooperate with the investigation was made without raising any particular privilege. In other words, Trump and the House aren't arguing over a particular point...

Trump Calls for Expanded Childcare in Appeal to Women Voters
Trump Calls for Expanded Childcare in Appeal to Women Voters

(Bloomberg) -- President Donald Trump on Thursday called for expanded access to childcare and family leave -- seeking to appeal to women voters by focusing on issues that Democratic challengers are emphasizing in their campaigns.Speaking at the White House, the president said families are struggling

Goldman Sachs employees want to cancel a Nikki Haley interview after her Confederate flag comments
Goldman Sachs employees want to cancel a Nikki Haley interview after her Confederate flag comments

They asked the bank's president to scrap an event with the former South Carolina governor and UN ambassador after she didn't denounce the flag's fans.

Leave a Comment

Your email address will not be published. Required fields are marked with *

Cancel reply

Comments

Top News: Economy