A mystery trader just made over $200M betting on Volatility

businessinsider.com.au

5 points·teapot01··5 comments

Assuming the trader is still holding the position described in the article, they have made significantly less profit to date, and they may have even lost money. That's because for each long 15-strike VIX call they hold, they're short two 25-strike VIX calls.

Their payoff diagram from this position w.r.t. the VIX settlement value at the time that their options expire increases linearly from 15 to 25, then decreases linearly (with a slope of the same magnitude) past that point. Their profit will be maximized if the VIX settles at exactly 25, while they will lose money if the VIX settles above 35.

Of course, it's also possible that this "mystery trader" is using this position as a hedge against direct or indirect VIX exposure in the remainder of their portfolio.

I agree - but looking at the daily graph of the VIX index - it rose slowly from around 18 to top out at 37. I'd expect anyone holding this position is actively trading and would have wound up the position with a significant profit.

Someone did well at the horses.

I understand the sentiment, but I would absolutely refer you to Nicholas Talebs books and his treatment of volatility if you have not already seen them.

Still like the horses analogy. There are professionals that can make good predictions about horse races, as there are professionals that can make good predictions about random (but not causeless) events in the market.

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