Andres Leighton/AP
- A trader that bet for months on a large increase in the Cboe Volatility Index (VIX), which serves as the stock market's fear gauge, finally took some profits off the table after the VIX's record increase.
- The so-called "VIX Elephant" returned to profitable territory amid last Friday's selloff, and made even more money on Monday as the market went haywire.
That was quick.
Just two days after the market's most notorious volatility bull extended his bullish wager on the Cboe Volatility Index (VIX) he's now returned to harvest the gains he made when stocks went berserk.
The profit-taking was a long time coming for the mysterious "VIX Elephant," who made a name for himself by stubbornly clinging to a wager the fear gauge would climb to levels not seen in the last couple years.
And while it's been a rocky road at times, the VIX Elephant returned to profitability when the index spiked 29% on Friday. Then, when it skyrocketed a record 84% on Monday, he made even more money - apparently enough to decide it was time to take some chips off the table.
While it's not immediately clear what the VIX Elephant's total net haul was on a dollar basis, the maximum total profit stood at an eye-popping $262.5 million as of his last rollover. Bloomberg's Greg Calderone has broken down the trader's profit-taking activity on Tuesday:
- Sold roughly 260,000 March $15 calls for $8.20, appearing to close a trade from Feb. 2 when 260,000 were bought for $1.83.
- Bought roughly 260,000 March $25 calls for $4.90, appearing to close a portion of a trade from Feb. 2 when 521,200 were sold for 62 cents.
- Bought roughly 260,000 March $12 puts for 30 cents, appearing to close a trade from Feb. 2 when 266,500 were sold for 76 cents.
The chart below, from Macro Risk Advisors head of derivatives strategy Pravit Chintawongvanich, shows the VIX Elephant's profit-loss chart from his July trade initiation through Friday. Note the recent uptick into profitability, and that the up-to-date line would be much higher.
As the VIX Elephant was absorbing losses in the months between September 2017 and February 2018, it was easy to wonder why he was so adamant about keeping his position intact. But the VIX's unexpected spike, and the mystery trader's sudden profit, should tell you everything you need to know about why he hung on.
Whether he was making a directional bet on higher volatility, or simply protecting a large bullish position on the US stock market, the VIX Elephant got his money's worth and then some.
And just think - if he'd been shorting volatility instead, like so many unprepared investors, he would've taken a massive beating. Long live the VIX Elephant.