A London-based fund manager believed to have spent $200m to protect against a rise in volatility in US stocks saw its strategy pay off during the recent market turmoil.
The fund manager, nicknamed after rapper “50 cent” because of the cost of the derivatives contracts it would buy, is said to be investment firm Ruffer, according to several bankers and traders familiar with the trades.
The fund purchased options on the Cboe’s Vix volatility index, thought to be a strategy for protecting against a large investment in the underlying stock market. If stock prices fell, and volatility rose, the hedge would pay off, helping to limit losses on its equity position.
At one point trades associated with 50 cent suggested Ruffer had spent $200m since the start of 2017, with most of that investment now worthless as the options contracts expired
But as volatility rose last week, and stock markets fell, the strategy paid off. According to Pravit Chintawongvanich, head of derivatives strategy at Macro Risk Advisors, 50 cent held a net profit of $200m on the trade as of February 9.
“That means they’ve made about $400 million mark-to-market this month,” said Mr Chintawongvanich.
He added that it’s not clear if 50 cent monetised the position. Given that it was a hedge against equity market losses, it may have been prudent to maintain at least some of the trade in case of a further leg down in stock prices.
“We don’t know if “Fiddy” has monetised any of their options . . . Regardless, this is still an impressive result,” said Mr Chintawongvanich.
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