Anonymous Trader Dubbed ’50 Cent’ is Wantonly Losing Tens of Millions in Expiring VIX Contracts

This is probably part of a top secret CIA shadow finance project, cloaked by the whimsicality of a seemingly brainless trading strategy which stands to capitalize on a Trump presidency ending.

Seriously, I have no other rational explanation for the story you’re about to read, about an anonymous trader delving into the VIX market to buy millions of dollars worth of contracts — all at the specified price of 50 cents. The strike or the duration is unimportant, just as long as the contract is trading at 0.50.

What in the actual fuck.

Source: CNBC

What’s most notable is that even after losing some $75 million by betting on a volatility spike, the huge options buyer known as “50 Cent” shows no signs of slowing down.

“I would categorize them as someone who doesn’t flinch at losing money,” commented Pravit Chintawongvanich, head of risk strategy at Macro Risk Advisors, who flagged the activity in a series of research notes.

The money-losing trades in question have been purchases of call options on the CBOE volatility index. These represent bets that market volatility is set to rise, and to a lesser extent, that stocks are set to fall.

Sussing out the actions of an institutional trader based on public information about options trades can be difficult, if not impossible. But this trader made it easier by leaving a clue out in the open.

“They have a very particular pattern of buying options,” Chintawongvanich explained Wednesday on CNBC’s “Trading Nation.” “Basically they come in every day and they buy 50,000 VIX calls worth 50 cents. So in other words, they don’t care too much what the strike is; they just pick the option that’s worth 50 cents.”

On Thursday, for example, 50,000 of the VIX 21-strike calls expiring in May were apparently purchased at a price of 49 cents. These options will expire worthless unless the VIX skyrockets 82 percent in a bit more than a month and a half, and will lose money unless the VIX closes above 21.49 on expiration (the VIX closed Thursday trading a bit below 12).

Since the multiplier on VIX options is 100, the purchase alone comes to nearly $2.5 million. In terms of the number of contracts, it was the single biggest trade of the day on any index or stock.

And that wasn’t all. Also on Thursday, 15,000 May VIX 20-calls were traded at 51 cents, and 10,000 May VIX 21-calls were traded at 47 cents.

In total, the party that has become known as “50 Cent” after its favorite purchase price has spent about $90 million, and has already seen $55 million worth of purchased options expire worthless.

Unsurprisingly, this strategy appears to have a marked effect on the overall market for VIX options. Total VIX call open interest has risen to an all-time high thanks to 50 Cent’s purchases, Chintawongvanich said.

A huge share of those calls have 50 Cent’s name on them.

Ironically, the huge bets on the VIX could end up dampening volatility.

“50 Cent becomes very well hedged in a risk-off event, and would be in a position to provide liquidity for those scrambling for a hedge,” Chintawongvanich wrote. “The presence of ’50 Cent’ could mean that future volatility spikes are muted.”

“We think it’s highly possible that this is some kind of systematic hedge run by a larger asset manager,” such as a government pension fund, Chintawongvanich said. “Even though $90 million is a lot of money to us … in percentage of their total assets, it might be a lot smaller.”

In all of my years managing money, I’ve never heard of bets being placed as reckless as these trades. Could this be the actions of a man who’s mandated to lose X amount of dollars in order to inherit a much larger amount, as was the case in the Richard Pryor classic film ‘Brewster’s Millions’?

Or, is this very smart money acting dumb in order to be dismissed as the actions of a deep pocketed lunatic?

Whoever it is, rest assured, has deep conviction that the record low levels of volatility that we presently enjoy is about to end.