While Thiel is best known for venture investments like those in Facebook and PayPal, Bloomberg writes that it was his macro strategy that positioned him to make a killing on last week’s spike in market volatility.
Outspoken Silicon Valley billionaire Peter Thiel was along for the ride in the world's great short-volatility trade with a $404 million bet as recently as the end of 2014.
But in the latest filings from Thiel Macro, it appears Thiel changed his mind in the latter half of last year and reversed his position into a massive bet on volatility jumping...
While he maintained a small $6.5mm VXX Put position (short-volatility bet), he added a massive $244mm SVXY Put position (long-volatility bet).
If you're wondering why Thiel's sudden change of heart, perhaps this will explain it.
The following, recorded secretly from EqDerivatives Conference in May 2017, exposes Chris Cole of Artemis and Mike Green of Thiel Macro arguing with XIV-creator Nick Cherney, specifically about the Termination Event in XIV.
The action starts in the Q&A session after the anti-short-volatility keynote by Cole and Green (move forward to around 37-38mins on for a heated argument!!!!)
Starting at 38mins there is a conversation (well, argument) between Chris Cole, Mike Green, and Nick Cherney (XIV PM) regarding the acceleration event in XIV. Mind you this was recorded in May 2017 but interesting tidbits on perception of risks in vol ETPs https://t.co/tcZnaMxiVL— Pat Hennessy, CMT (@pat_hennessy) February 6, 2018
Cherney insults them for being (correctly) anti-XIV... and Cole and Green pretty much eviscerate his logic, XIV, and the entire short-vol trade, and explain to him why his own product is doomed to fail.
It seems they were right... and Thiel Macro made a killing!!
As Bloomberg reports, the options, which entitle the holder to sell the underlying shares at a set price in the future, increase in value when those underlying shares decline. Thiel Macro still held the put options on 1.9 million shares of the ETF as of Dec. 31, according to the filing. The face value of those shares was $244 million.
After closing at $121.67 a share on Feb. 1, the ETF collapsed in the ensuing days, hitting a low of $9.58 a week later. The shares covered by Thiel’s put options lost about $213 million of market value during that week.
It is unknown at what strike these options were bought, but no matter, if Thiel held onto the options, his gains would equal some portion of the $213 million decline.
For a sense of context, at-the-money SVXY Puts from mid Q4 exploded in price from around $9 to $108 in the last two weeks... a 1000% gain!!!
Of course, we await another article akin to The Guardian's from last week, “Making millions from chaos: the fund cashing in on the stock market collapse” villifying those who dared not be all-in, levered long to the US stock market.