The volatility market’s greatest mystery has been solved at long last.
The identity of “50 Cent,” the investor who earned the nickname by buying gobs of volatility contracts costing roughly that much, has been revealed.
Financial Times reporters Joe Rennison, Christian Pfrang and Miles Johnson were the ones to blow the lid off the case, citing four people from trading departments at banks who are familiar with the trades.
Ruffer’s investment vehicle of choice has been 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.
As of earlier this week, Ruffer had spent $US119 million this year betting on a stock market shock, $US89 million of which had expired worthless, according to data compiled by Macro Risk Advisors. The investor has gradually amassed holdings of about 1 million VIX calls through three occasions so far in 2017, and each time a significant portion expired at a loss.
Blame a subdued VIX for the futility. The fear gauge was locked in a range between 10 and 14 for the first three months of 2017, and while it’s since climbed as high as 15.96, it’s been stuck well below 14 since a single-day plunge of 26% nine days ago. Earlier this week, the index closed at the lowest level since February 2007.
But that doesn’t mean Ruffer is giving up. Already loaded up on May contracts, the firm has continued to buy cheap VIX calls expiring later in the year — wagers costing about 50 cents.