BloombergMarkets ‘50 Cent’ Is Buying Up Big on March VIX Calls By Luke Kawa January 26, 2018, 10:17 AM CST Just as the rapper Curtis Jackson III captures attention for realizing he’s made millions on Bitcoin, the buyer of volatility options that shares his moniker is a window shopperin VIX options no longer. Trading patterns associated with the trader dubbed “50 Cent” resurfaced on Friday as 50,000 March VIX calls with a strike price of 24 were purchased for 49 cents a pop. This buyer of out-of the-money options that hedge against stock-market turmoil by betting on a surge in the Cboe Volatility Index may have also switched their style up. “I think for a while ‘50 Cent’ became ‘30 Cent,’” said Pravit Chintawongvanich, head of derivatives strategy at Macro Risk Advisors. “There were a lot of prints that fit that bill, though you can never know if it’s the same person.” 50 Cent’s role as the most interesting -- and largest -- player in VIX options has largely been usurped by the so-called “VIX Elephant” who’s been putting on massive call spread trades since July.
This is old news and we established that it is a HF hedging their longs. Last year they paid out like 250 million bucks in options but they were long billions. AKA buying insurance...
Have been reading about this for months now...this is just a trade to protect the already made profits on their long position......so even though they are spending boatloads of money on these VIX calls and continue to lose they are surely making it up on their long positions as the market keeps rallying day after day....I'm sure though they have bought enough VIX options to offset any losses that might occur on a huge market collapse....those VIX options would be worth tens of millions if not hundreds of millions the day the markets turn...the vix is going to jump 100%+ on any tiny 4-5% market drop.... everyone knows markets fall quicker than they rise....and with this market rallying thousands of points in the last year a few thousand points off the top in just a few weeks can certainly happen....VIX would surge to 30+
Sure it would - but for how long? The VIX options are European and you wont be able to exit when the market is in full correction., The correction will be swift and the VIX will drop fast after that.
You havent seen bid/ask spreads of the VIX when the market is in full correction? Its not the volume that is the issue - its that you wont get a price quote where you arent scalped for all you are worth.
In that scenario it's not the VIX call owner who needs liquidity. He/she can provide that liquidity themselves to the side of the market that is currently panicking.
I am sorry that I am not being clear, when the market is in full correction the bid/ask spread on VIX options widens enormously. This means that you cannot provide liquidity to either side of the market as you suggest. This is a function of market makers realising that the spike in the VIX will at the very least be seriously reduced once the market calms down. The VIX could be at 40 but there will not be decent bid/ask spreads before the MM feels that the main panic is over. Those who sold the options have no reason to buy them back to be gouged by the panic in the market, these are European options and hence they can wait. If you try and provide liquidity by offering a higher strike call you will find the same problem, an awful bid price. If you read up on it, the recommendation is to sell puts on the VIX if you think volatility will rise because its easier to get out of those and they react more directly on the ask size. On the assumption - which is a big one - that these calls were bought with a view to a higher VIX its simply that the bet is more restless markets that go up and down rather than the rather steep climb to the sky we are experiencing now.
If the VIX seriously spikes margin calls and general severe depletion of account equity will force vix call sellers to cover. It's nearly always the stops being hit that causes the cascading price action in any market. Either way the vix call buyer can cover his delta with vix futures temporarily if he/she wants which was the main point i was making.
Fiddy is long these far out OTM wings... He's long the liquidity option, obviously. Partly, that's what this trade is all about.