‘50 Cent’ Profited From Volatility Jump, Wells Fargo Says
(Bloomberg) -- The options player known as “50 Cent” -- or someone using a similar trading strategy -- has profited from a flurry of bullish volatility bets over the last two weeks, according to Wells Fargo & Co.
Since mid-January, there has been an increase in purchases of bullish call options on the Cboe Volatility Index for around 50 cents each. That’s a trade reminiscent of the original “50 Cent” strategy in 2017 -- so called as a play on the stage name of rapper Curtis J. Jackson III -- although this time the buyer has already taken profits on the trade, according to Wells Fargo’s Pravit Chintawongvanich.
“Unlike ‘50 Cent’s’ original iteration back in 2017, the recent VIX call buyer has actually monetized these trades,” Chintawongvanich wrote in a note Friday.
On Jan. 31, around 100,000 VIX calls expiring in February with a strike price of 22 were sold at $1.20 each, according to data compiled by Bloomberg. That would suggest a profit of about $7m for any buyer who had bought them for 50 cents apiece.
VIX futures climbed over 2 points Friday to close above the 18 level as fears of the coronavirus outbreak pummeled risk assets.
The profit taking suggests dealers who had sold the original call options won’t find themselves forced to buy VIX futures in order to hedge, should volatility continue to climb, and investors should be careful making assumptions on how traders are currently positioned, Chintawongvanich added.
The original “50 Cent” captured the market’s attention in 2017 when a noticeable pattern emerged of big purchases of out-of-the-money VIX options priced at around 50 cents each. Those bets paid off handsomely as volatility surged in February 2018. Similar traders were spotted in July, and also in January as calm returned after the flare-up of tensions between the U.S. and Iran.
“We will refrain from speculating on whether this is the same entity or just a similar trade,” said Chintawongvanich.
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