'50 Cent' Volatility Buyer Has Options Insiders Asking 21 Questions

More than $33 million in VIX calls that cost about $0.50 purchased year-to-date.

People in markets just can't rap their heads around it.

The CBOE Volatility Index, commonly known as the VIX, has closed below 15 for over 50 consecutive sessions and large speculators are short the measure by the most in 12 years -- but there's a steady, sizable source of demand for short-term options from a mystery buyer that will pay off if implied volatility jumps to between 19 and 24.

A handful of industry insiders have noted the the approximate cost of the options is rather constant at a level the rap artist Curtis James Jackson III would likely appreciate. 

"Some of our client base has taken to calling this mystery buyer(s) '50 cent', as the selection of the VIX upside call seems somewhat arbitrary – as long as it is near month and costs about 50c," writes Pravit Chintawongvanich, head derivatives strategist at Macro Risk Advisors.

Source: Macro Risk Advisors

The VIX spiked as much as 18 percent Monday to 12.53, but would still need to rise substantially for the calls -- according to the strategist, there's been over $33 million in purchased year-to-date -- to be in the money. 

It isn't very likely that these call options are being used to express an outright view on implied volatility, but rather to hedge another position that collects a fair bit of yield to offset all the money spent on premiums.

But what's the other side of the book? Long fixed income? Short volatility?  Long stocks? Is this one buyer, or multiple institutions? Is this a London Whale redux?

To borrow from Mr. Jackson, there are at least 21 Questions about who's behind these trades and what they're up to.

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