`VIX Elephant,' `50 Cent' Back in Options as Volatility Jumps

(Bloomberg) -- The “VIX Elephant” has awakened. And “50 Cent” is back.

At a moment when political tumult is roiling markets, volatility trading patterns closely associated with two high-rolling, but unknown, investors have re-emerged.

First, the trader who’s known as the Elephant for making big moves in the VIX -- but who’s been surprisingly quiet in recent weeks -- returned with a vengeance to start December, buying and selling more than 2 million contracts Friday to continue betting on a modest rise in the Cboe Volatility Index. That’s three times the average daily volume for all VIX options.

The Elephant caught a major break thanks to the sharp retreat in the S&P 500 Index following reports that former national security adviser Michael Flynn would implicate members of President Donald Trump’s transition team in the probe into Russian meddling in the 2016 election. The VIX spiked to as high as 14.58 as equities tumbled.

Pravit Chintawongvanich, head of derivatives strategy at Macro Risk Advisors, said the investor had been poised to lose $20 million to $30 million on the December leg of this trade before Friday, but was able to escape with a loss of less than $2 million in closing up those positions.

“They got really lucky with the selloff today,” Chintawongvanich said. “They were down a lot on the December position, and this allows them to get out of it without too much of a loss.”

The mystery trader also initiated positions in January VIX options to roll over this trade, selling 262,500 puts with a strike price of 12 and 525,000 calls with a strike price of 25, while purchasing 262,500 calls with a strike price of 15.

For VIX futures, the Elephant’s stampede amounts to 13,700 December futures to sell and 10,700 January futures to buy, according to Chintawongvanich.

It’s also a good day for “50 Cent” -- the options buyer who’s been saddled with the same nickname as rapper Curtis Jackson III for buying options at or close to 50 cents. Early on Friday morning, 50,000 January VIX call options with a strike price of 21 were purchased at 49 cents apiece before the Flynn tumult began.

©2017 Bloomberg L.P.

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