Here’s the trade that made $400 million on last week’s volatility spike
As a temporary panic gripped stock market investors during last week’s selloff, one trader turned a loss into almost $400 million in profit thanks to a tiny series of bets on a volatility spike.
The trader is known as ‘50 Cent’—not to be confused with the accidental bitcoin millionaire and rapper—and got his name from buying small options for the Cboe Volatility Index, or VIX VIX, -2.50% for as little as half a dollar, hoping that the low volatility environment that had persisted until the beginning of this month would turn, according to reports by the Financial Times and Business Insider.
And did it ever turn.
The VIX, which uses options on the S&P 500 SPX, +0.26% to calculate expected volatility over the coming 30 days, spiked to its highest level since the Brexit referendum in June 2016, recording its largest percentage change in history, last week amid a global equity selloff.
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According to Macro Risk Advisors, the VIX trade made profit of close to $400 million for ‘50 Cent’, moving it from a $197 million loss position to a $183 million profit in a matter of weeks.
‘50 Cent’ was identified as Ruffer LLP, a London-based asset manager run by Jonathan Ruffer, last year by the FT, citing sources at four banks that were familiar with the trades. Ruffer LLP didn’t immediately respond to an email requesting comment.
While the trade will have most likely not just been pure speculation but part of a hedging strategy for Ruffer’s portfolio, it was also uncertain whether Ruffer had actually monetized its options, Macro Risk Advisors told the FT.