One trader’s persistent bets that share market volatility will rise paid off in a big way last week.
The trader gained the moniker “50 Cent” last year by consistently betting on a spike in the Cboe volatility index (VIX), via the purchase of options contracts worth 50 US cents.
And that meant they were well positioned when the VIX more than doubled in the wake of a stock selloff on February 5, and finished the week 68% higher.
As Joe Ciolli at BI Prime reports in detail, 50 Cent has now made a gain — on paper — of around $US183 million from the recent market turbulence, based on data from Macro Risk Advisors.
In mid-December, the trader was sitting on an unrealised loss of $200 million, as their US50-cent options contracts consistently expired worthless amid an extended period of market tranquility.
So that means that over the course of two months, “50 cent” has reversed their position to the tune of around $US400 million:
Last year, the mysterious 50 cent trader was revealed to be Ruffer LLP, a London-based investment fund based whose client roster includes the Church of England.
As part of their analysis, MRA said the trades are most likely part of broader strategic positioning by Ruffer to hedge against a market downturn.
At this stage, no one knows for sure whether the company closed out its positions and cashed out on the trades.
Either way, trading strategies based on a rise in volatility have certainly benefited from the market jitters in February.
Here’s the latest profit & loss summary for the 50 cent contracts taken out by Ruffer LLP: