Posted by on April 22, 2017 9:45 pm
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Categories: Behavioral finance Business CBOE CBOE Volatility Chicago Board Options Exchange Economy Finance Hedge Market Sentiment Mathematical finance money Money 50 Options S&P/ASX 200 VIX Technical Analysis US Commodity Futures Association VIX Volatility

Three weeks ago we introduced the real “50 Cent”the mystery trader whose pattern of huge, near-daily trades on the VIX is turning heads in the options market.

Not him..

As we detailed previously, Pravit Chintawongvanich, head of risk strategy at Macro Risk Advisors,  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 Chintawongvanich 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.”

Having reportedly suffered $89 million in losses so far in 2017 however, the trader is not giving up on his strategy and just doubled-down

On Wednesday morning, the trader, nicknamed “50 Cent” by Macro Risk Advisors because of their predilection for contracts that cost roughly that much, bought an additional 100,000 VIX calls betting that the index will climb about 40% by May.

Sending VIX Call volumes to near-record highs

And MRA doesn’t think the trader will stop there. The firm expects purchases of bullish VIX contracts to continue in the coming days.

“The amounts of money 50 Cent is spending are large, but this could be just the tip 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 plenty of hedging that takes place that may not be as obvious and predictable as 50 Cent, and thus harder to attribute to one person.”

Still, positioning from hedge funds suggests the trader might be on to something. They haven’t been this bullish on the VIX since March 2016, according to data from the US Commodity Futures Association.

Notably, 50 Cent’s options would become profitable only if the VIX climbed to between 19 and 26, according to data compiled by MRA.

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