Mystery trader fifty Cent can t stop betting on a stock market shock
A mystery trader called ’50 Cent’ has already lost $89 million but can’t stop betting on a stock market shock
After taking $89 million in losses so far in 2017, one trader is doubling down on bets the US stock market is in for a rude awakening.
The mystery trader’s investment vehicle of choice is the CBOE Volatility Index, or VIX, a measure of expected price swings in US equities that serves as a barometer for investor nervousness. It generally climbs as stocks fall, so purchases of VIX contracts translate to bearish wagers on the S&P 500.
On Wednesday morning, the trader, nicknamed “50 Cent” by Macro Risk Advisors because of their predilection for contracts that cost harshly that much, bought an extra 100,000 VIX calls betting that the index will climb about 40% by May.
And MRA doesn’t think the trader will stop there. The stiff expects purchases of bullish VIX contracts to proceed in the coming days.
It wouldn’t be the very first time — fifty Cent has little by little amassed holdings of about one million VIX calls through three occasions so far in 2017, and each time a significant portion of the premium paid has expired worthless. The most latest example came on Wednesday, when 725,000 of fifty Cent’s contracts expired without making any money, MRA data shows. Perhaps the fourth time is the charm.
So what has been the harm to fifty Cent’s bottom line? It’s not pretty. Out of the $109 million the trader has spent this year buying the VIX, $89 million has expired worthless.
Blame the subdued VIX. The so-called fear gauge, which has a bull-market average of Legal.78, was locked in a range of inbetween ten and fourteen for the very first three months of 2017. It has since climbed as high as 15.96, still well below where the measure has historically traded. It closed at 14.93 on Wednesday.
50 Cent’s options would become profitable only if the VIX climbed to inbetween nineteen and 26, according to data compiled by MRA.
Still, positioning from hedge funds and other large speculators suggests the trader might be on to something. They haven’t been this bullish on the VIX since the commence of December, according to data from the US Commodity Futures Association.
To MRA, fifty Cent’s unwavering commitment to a VIX spike is a sign that hedging activity through the purchase of volatility is alive and well.
“The amounts of money fifty Cent is spending are large, but this could be just the peak of the iceberg when you consider all the hedging that takes place over the counter as well,” Pravit Chintawongvanich, the head of derivatives strategy at MRA, wrote in a client note on Thursday. “Even in the listed space, there is slew of hedging that takes place that may not be as evident and predictable as fifty Cent, and thus stiffer to attribute to one person.”