A Mystery Investor Just Made A $262 Million Bet That The Stock Market Will Crash By October

Tyler Durden's picture

Authored by Michael Snyder

One mystery trader has made an extremely large bet that the stock market is going to crash by October, and if he is right he could potentially make up to 262 million dollars on the deal.  Fortunes were made and lost during the great financial crisis of 2008, and the same thing will happen again the next time we see a major stock market crash.  But will that stock market crash take place before 2017 is over?  Without a doubt, we are in the midst of one of the largest stock market bubbles in U.S. history, and many prominent investors are loudly warning of an imminent stock market collapse.  It doesn’t take a genius to see that this stock market bubble is going to end very badly just like all of the other stock market bubbles throughout history have, but if you could know the precise timing that it will end you could set yourself up financially for the rest of your life.

I want to be very clear about the fact that I do not know what will or will not happen by the end of October.  But one mystery investor is extremely convinced that market volatility is going to increase over the next few months, and if he is correct he will make an astounding amount of money.  According to BI, the following is how the trade was set up…

  • To fund it, the investor sold 262,000 VIX puts expiring in October, with a strike price of 12.
  • The trader then used those proceeds to buy a VIX 1×2 call spread, which involves buying 262,000 October contracts with a strike price of 15 and selling 524,000 October contracts with a strike price of 25.
  • For reference, bullish call spreads are used when a moderate rise in the underlying asset is expected. Traders buy call options at a specific strike price while selling the same number of calls of the same asset and expiration date at a higher strike.
  • In a perfect scenario, where the VIX hits but doesn’t exceed 25 before October expiration, the trader would see a whopping $262 million payout.

I will be watching to see what happens.  If this mystery investor is correct, it will essentially be like winning the lottery.

But just because he has made this wager does not mean that he has some special knowledge about what is going to happen.

For example, just look at what Ruffer LLP has been doing.  They are a $20 billion investment fund based in London, and they have been betting tens of millions of dollars on a stock market crash which has failed to materialize so far.  But even though they have lost so much money already, they continue to make extremely large bearish bets

As of earlier this week, Ruffer had spent $119 million this year betting on a stock market shock, $89 million of which had expired worthless, according to data compiled by Macro Risk Advisors. The investor has gradually amassed holdings of about 1 million VIX calls through three occasions so far in 2017, and each time a significant portion expired at a loss.

 

Blame a subdued VIX for the futility. The fear gauge was locked in a range of 10 to 14 for the first three months of 2017, and while it has since climbed to as high as 15.96, it has been stuck well below 14 since a single-day plunge of 26% nine days ago. Earlier this week, the index closed at its lowest level since February 2007.

 

But that doesn’t mean Ruffer is giving up. Already loaded up on May contracts, the firm has continued to buy cheap VIX calls expiring later in the year — wagers costing about 50 cents.

I can understand why Ruffer has been making these bets.  In a rational world, stocks would have already crashed long ago.

The only way that stock prices have been able to continue to rise is because of unprecedented intervention by global central banks.  They have been pumping trillions of dollars into the financial markets, and this has essentially completely destroyed normal market forces.  The following comes from David Stockman

The Fed and its crew of traveling central banks around the world have gutted honest price discovery entirely. They have turned global financial markets into outright gambling dens of unchecked speculation.

 

Central bank policies of massive quantitative easing (QE) and zero interest rates (ZIRP) have been sugar-coated in rhetoric about “stimulus”, “accommodation” and guiding economies toward optimal levels of inflation and full-employment.

 

The truth of the matter is far different. The combined $15 trillion of central bank balance sheet expansion since 2007 amounts to monetary fraud of epic proportions.

In the “bizarro world” that we are living in today, many companies are trading at prices that are more than 100 times earnings, and some companies are actually trading at prices that are more than 200 times earnings.

Stock prices have become completely and totally disconnected from economic reality.  As I discussed the other day, U.S. GDP has only risen at an average yearly rate of just 1.33 percent over the past 10 years, but meanwhile stock prices have been soaring into the stratosphere.

Nobody in their right mind can claim that makes any sense at all.  Just like in 2000, and just like in 2008, this absolutely ridiculous stock market bubble will have a horribly tragic ending as well.

Once again, I don’t know what the exact timing will be.  Stocks could start crashing tomorrow, but then the Swiss National Bank could swoop in and buy 4 million shares of Apple just like they did during the months of January, February and March earlier this year.

The biggest players in this ongoing charade are the global central banks.  If they decide to keep pumping trillions of dollars into global financial markets, they may be able to keep the bubble going for a little while longer.

But if at any point they decide to withdraw their artificial assistance, those that have placed huge bets against the market are going to make absolutely enormous piles of cash.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
FreeShitter's picture

He's gonna lose that bet.

Xatos's picture

It was me. 

 

I make that bet everyday.

Stuck on Zero's picture

Peter Schiff has correctly called 18 of the last 3 recessions.

Buckaroo Banzai's picture
  • To fund it, the investor sold 262,000 VIX puts expiring in October, with a strike price of 12.
  • The trader then used those proceeds to buy a VIX 1×2 call spread, which involves buying 262,000 October contracts with a strike price of 15 and selling 524,000 October contracts with a strike price of 25.

Correct me if I'm wrong, but I believe this kind of trade is known as a "Texas Hedge"

SurlysonofaBitch's picture

Michael Snyder has correctly called 20 of the last Zero collapses. 

surfersd's picture

Let me get this straight. This guy is going short volatility. Selling three options and buying one.

He is also getting long a 10 handle wide call spread 1x2. What if he is really right about volatility and it moves. 30 handles? Is he not completely crushed? The money he made from the call spread disappears after the market moves up 20 handles.

No free lunch

Give_me_liberty_or's picture

you are one of the few people who makes any sense on the internets. +1

Putrid_Scum's picture

I agree for one reason: if the crash happens the USA will look like Zimbabwe. And the border will be closed. And there'll be the sound of automatic weapons fire.

So I hope he wins his bet. Though he'll probably lose his life in the civil war that folllows.

Putrid

HRClinton's picture

If he wins, if could be Silverstein, the brief owner of the WTC buildings, who benefitted from the insurance payouts. 

If it happens, look to the Kabala date of 10/11.

:-)

gm_general's picture

"There was so much loss of cash, the smartest thing to do was just pull it - so we pulled the trade, and the VIX collapsed."

bigkahuna's picture

It has now in addition been reported before the fact. You guys may be onto something here.

Zuke Kook's picture

I wish I could mod this brilliant comment up 50x over!

Justin Case's picture

it will essentially be like winning the lottery.

Hopefully not. I hear of lawsuits, that lottery winners are not getting paid out their winnings b/c they ain't got the coin! Maybe they'll just arrest the winner and charge him with using insider information or some other Trumped up charges. Everything is an illusion nowadaze. You win, but can't collect.

Nunyadambizness's picture

I believe that's only in the Communist State of Illinois, the rest of us are getting our winnings.  Then again, if the People's Republik of Kalifornia collapses, we'll have to see if the lottery can survive...

veritas semper vinces's picture

Not if he's an insider. And with so much money to bet,he might be

order66's picture

What a shocker that this comes from "The Economic Collapse Blog".

Yawn.

Until the presses stop completely, forever or CAPE hits 35-40, there's not much downside to be had.

Justin Case's picture

downsideright now is the USD selling off. CDN:USD ratio l@@ks like a collapse in motion.

Ajax-1's picture

Stop it, you are making me blush.

TheStressMan's picture

100% AGREE!  Few seem to remember the 1995-2000 NASDAQ run.   And the amount of thin air money back then doesn't even pale compared to what's out there now.  Even if the presses do stop, I believe CAPE could still easly exceed 40-45.   Until most of this printed money is put somewhere, there's pleanty of upside left in this stock market, bond market, art market, and real-estate market.

Stormtrooper's picture

Who really owns those Apple shares purchased by the Swiss National Bank?  Who really owns the Swiss National Bank?  Anything like the (privately owned) Federal Reserve Bank?

Anarchyteez's picture

This pile of shit has to quit smelling like roses at some point. But when?

ipso_facto's picture

'This pile of shit has to quit smelling like roses at some point. But when?'

The 'market' is now just another government program.  The smell will be eternal.

Took Red Pill's picture

when the plunge protection team decides it's time

Thalamus's picture

When everything is in place, which in reality will be never, but things are getting close enough to pull the plug soon.  

Too-Big-to-Bail's picture

I would of thought Janet Yellen could afford a lot more than $262 million for a sure bet

Justin Case's picture

it's human nature to be greeedy!

Silver Savior's picture

She forgot how many millions she had. :)

Latitude25's picture

Haha.  He'll make $262 million dollars but the dollar will be worthless by then.

Horse Pizzle's picture

For sure German cars will be very expensive.

Silver Savior's picture

No doubt. If it ment 262 million in silver bars I would be excited. 

Silver Savior's picture

I am a crypto trader but silver appeals to me more. The only reason I am into crypto is to get more silver with it. I never liked the idea of digital currency but I just use it as a tool to get the better stuff.

truthalwayswinsout's picture

There is going to be a massive crash the likes of which no one has ever experienced before. The only thing that anyone needs to determine is WHEN.

In such a case, it is best not to place timed bets or spreads and to simply place your short bets and wait and just get on with life. That is the beauty of highly leveraged negative etfs.  They do cost a bit to hold beyond a few months but if you are right you make 100-500 to 1.

Another great bet is 30 year noncallable treasury strips. If the market craters, they will easily double if not triple or more in value and even if you are wrong you still get the interest.

Putrid_Scum's picture

I respectfully disagree. The monetary system is collapsing

SumTing Wong's picture

I've made my bets by buying tangible items: arable farmland and the tools to work it, animals that produce meat and can continue to do so, gold silver, guns, ammo.

Byte Me's picture

Don't forget to buy FOOD, seeds, the means to provide yourself with power, ..clean water..

..means of repairing ^^.

Oh, and a knife - for when the bullets run out.

Nunyadambizness's picture

And, a machete or a tomahawk for those pesky snakes and such.  And an axe, for when the chainsaw runs out of gas.  And a crossbow.... just because it's a crossbow.

Kafir Goyim's picture

Check out some of his crossbows and other weapons.  Let him show you their features!

https://www.youtube.com/user/JoergSprave

 

Dilluminati's picture

Another great bet is 30 year noncallable treasury strips.  (that is actually very sound advice in non-callable) however the length is problematic for anyone younger than 35 year of age, my apologies if this is your age.  Actually the 10 year CD that would have to be bought through a broker, fidelity, E-trade, etc. again non-callable, FDIC insured, is better at the 10 year period and last I looked at %2.6 (sunday) which if in an IRA or self-directed 401K would accrue no-fee and tax free.  Discover has an offering that has been very attractive at the 10.

Now having some dry powder to go 3x inverse and run it for 3-days is advisable but I think that you need to see some action


Byte Me's picture

I hope it's Donald J Trump.

Through a Russian proxy - of course.

Byte Me's picture

Libtards are out fast toady. Oh, smite me, TODAY.

(Normally I don't care a toss about DVers, after all - it's your right to "free speech" on ZH - right?)

Ed. STILL don't care a damn. If fuckwads can't see that the 'offending' comment was intended to be couched BS masquerading as /s - then you shouldn't crawl out of the basement until you understant this minor point of sophistry.

Get back under the washing machine.

Horse Pizzle's picture

Kim Jong Un will be dead before November.