Peter Thiel Had $244 Million Bet on Volatility Jump at Year-End

(Bloomberg) -- Peter Thiel is known for venture investments like those in Facebook Inc. and PayPal Holdings Inc. But it was a macro strategy that positioned him to make a killing on last week’s spike in market volatility.

Thiel Macro, which invests the billionaire’s fortune, held a bet at the end of 2017 tied to the Cboe Volatility Index, or VIX, according to a regulatory filing Wednesday from the San Francisco-based firm. Thiel, 50, would have reaped big profits if he continued to hold the wager -- composed of put options -- when stocks tumbled last week and the VIX soared.

Peter Thiel Had $244 Million Bet on Volatility Jump at Year-End

Until this month, investors worldwide had earned handsome returns on as much as $2 trillion they had bet on markets remaining calm. Investors poured into the ProShares Short VIX Short-Term Futures, an exchange-traded fund that moves opposite the VIX. Its shares more than doubled last year to close at $128.21 on Dec. 31.

Thiel was part of the crowd, with a $404 million bet against volatility as recently as the end of 2014, according to filings with the U.S. Securities and Exchange Commission. But the contrarian changed direction during last year’s second and third quarters, wagering on renewed volatility by purchasing put options on a split-adjusted 1.9 million shares of the ProShares ETF.

ETF Collapses

The options, which entitle the holder to sell the underlying shares at a set price in the future, increase in value when those underlying shares decline. Thiel Macro still held the put options on 1.9 million shares of the ETF as of Dec. 31, according to the filing. The face value of those shares was $244 million.

After closing at $121.67 a share on Feb. 1, the ETF collapsed in the ensuing days, hitting a low of $9.58 a week later. The shares covered by Thiel’s put options lost about $213 million of market value during that week.

If Thiel held onto the options, his gains would equal some portion of the $213 million decline. For instance, if the average exercise price of his options was $100 a share, and he exercised or sold the securities when the ETF was trading at about $10 a share last week, his overall gain on each ETF share would have been $90, or a gross profit of about $171 million.

Thiel has roots on Wall Street as well as Silicon Valley, having worked as a derivatives trader for a unit of Credit Suisse Group AG. In 1996, he set up Thiel Capital International, a hedge fund that traded futures on equity indexes, debt and foreign exchange. A co-founder of PayPal, Thiel sold the online payment company to EBay Inc. in 2002 and then started Clarium Capital Management to carry out “high-conviction directional investments” based on macroeconomic trends, according to regulatory filings.

Spokesmen for Thiel and his macro firm didn’t return calls and emails seeking comment on whether they still owned the put options.

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