‘50 Cent’ Volatility Buying Crops Up After Market Flare-Up Fades
‘50 Cent’ Volatility Buying Crops Up After Market Flare-Up Fades
(Bloomberg) -- The volatility buyer dubbed “50 Cent” appears to have resurfaced, buying up market hedges as calm returned in the aftermath of a flare-up in Mideast tensions.
Calls on the Cboe Volatility Index, or VIX, with a strike price of 25 that expire on Feb. 20 are the most actively traded VIX option contract as of mid-morning Wednesday, with volumes in excess of 75,000. The biggest trade -- accounting for nearly all of the volume -- was a purchase of 73,601 options at $0.49 apiece shortly after U.S. markets opened.
The VIX, a measure of the S&P 500’s 30-day implied volatility derived from out-of-the-money options prices, popularly known as the market’s “fear gauge,” hasn’t touched 25 since Jan. 3, 2019, and has averaged a little above 15 over the past year. It opened nearly 1.5 points higher Wednesday at 15.24 after an Iranian strike on joint U.S.-Iraqi military bases stoked fears of an all-out war, but erased the increase to trade flat as risk assets recovered.
The call-buying strategy attributed to “50 Cent” saw millions in premium spent in this fashion protecting against a market downturn, and may have paid off famously during the biggest one-day spike ever on Feb. 5, 2018. The moniker, a play on the stage name of rapper Curtis J. Jackson III, comes from the buyer’s penchant for purchasing call options at or very close to that price.
The contracts most likely represent a hedge, rather than an outright bet on market calamity. In the past, strategists speculated that the reason this actor paid a fixed price for options had to do with the purchases being part of a preset hedging budget. And if the spike in the VIX at the open showed anything, it’s that markets weren’t prepared for an escalation in the conflict between U.S. and Iran.
To contact the reporter on this story: Luke Kawa in New York at lkawa@bloomberg.net
To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Brendan Walsh, Rita Nazareth
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