‘50 Cent’ Just Reloaded With a Big Hedge Against a Stock SelloffBy
74,300 block of call options purchased on Tuesday morning
Strategist suggests buy linked to June VIX options expiry
50 Cent spent roughly $3.8 million hedging against a selloff in risk assets this morning.
Not the rapper -- the mysterious volatility buyer or buyers who earned the moniker due to their penchant for buying huge lots of VIX call options priced at roughly a half-dollar apiece.
The CBOE Volatility Index, known as the VIX or fear index, has remained at historically low levels for years. Explanations for the prolonged period of market tranquility have ranged from central bank largesse to the growth of social media.
On Tuesday morning, 74,300 call options with a strike price of 21 were purchased at 51 cents a pop by a trader at 9:48 a.m., a very similar size and price to the block of 75,000 call options with a strike of 18 that expire in July bought earlier this month. The options bought today expire in August.
The Financial Times has reported that the persistent buyer or buyers of relatively inexpensive VIX call options is U.K.-based investment firm Ruffer Investment Co.
Pravit Chintawongvanich, head of derivatives strategy at Macro Risk Advisors, suggested that today’s buying behavior was a function of the expiration of June VIX options on Wednesday, and this investor’s desire to keep a constant, sizeable amount of insurance against a downturn in risk assets.
"I think he is loading up because his June stuff expires," the strategist said. "He needs to maintain some minimum amount of VIX call options."
50 Cent has roughly 320,000 call options that will expire tomorrow, Chintawongvanich estimates, and his total call open interest would have fallen to just 585,000 without this purchase.
This reload of VIX options has, by all accounts, been pulled off more smoothly than the "Kanan Reloaded," the oft-delayed sequel to the original 50 Cent’s eleventh mixtape.