A few days ago Bloomberg made a big splash with a story about an unknown trader who was so enamored in the BTFD mentality, or for whatever other reason, that he sold a substantial $18 million in VIX calls, betting that the market downdraft would promptly normalize. Alas, while he may have pocketed the cash up front, since then things have not worked out quite as expected for the variation margin requirements of the intrepid seller of vol.
The trade included the sale of 250,000 February 22 calls for about 70 cents each, according to data compiled by Bloomberg and Trade Alert LLC. It happened after the VIX reached an intraday high of 18.99 around 12:20 p.m. New York time. The investor will keep the proceeds if the VIX stays below 22 and the calls expire worthless
We can only suspect the seller believed that the EM FX debacle was a storm in a teacup and that the Turkish rate hike would solve things as he entered the position soon after news broke of the Turkish Central Bank’s emergency meeting’s timeline.
While the big seller must have been cock-a-hoop for a day, his MTM is starting to hurt now…
and today saw some volume going through but nothing compared to the 250,000 call position he entered…
(click image for large legible version)
As the implied vol of VIX surges.
Of course – only one thing matters…