Balls to the Walls

A trader made a massive bullish trade on the S&P 500 on Monday, putting at risk hundreds of millions of dollars of capital. The trade is reminiscent of, and has drawn comparisons to, Warren Buffett’s giant bet on global stocks more than 10 years ago (The king of BTFD Fags.) 

On Monday, a trader sold 19,000 S&P 500 put options that would obligate him or her to buy the index at 2100 on expiration in December 2020, according to Reuters. The index would need to drop no more than 22% from Monday’s closing level of 2582 and the bettor stands to rake in $175 million in premiums.

The move is reminiscent of Berkshire Hathaway selling billions of dollars in index options premium between 2004 and 2008, before ultiamtely being bailed out by the Treasury and the Fed. It was a broad bet that the global market would rise over the next 15 to 20 years and, although initially the trade was made anonymously, it was eventually revealed to be Buffett’s Berkshire Hathaway.

Berkshire has netted over $4 billion in premium from the sale of these options, the final chunk of which is set to expire in 2026. And even though Monday’s bet was not nearly as big as Buffett’s, it still could wind up costing the trader hundreds of millions if the market moves lower than the trader expects: should the market drop by 34%, the trader stands to lose about $558 million.

A second lot of about 3600 of the same puts traded on Monday, putting the total volume for the contract at about 24,000 on the day. On Friday, 5500 of these contracts also changed hands.

One trader guessed that the option write was a hedge against another position by a large bank.

Benn Eifert, chief investment officer at QVR Advisors in San Francisco stated: “The natural sellers of long-term downside puts are structured products desks at banks, who are hedging exposure they get from retail clients who buy structured notes that have embedded short put options. That would be my default guess on this.” As anyone’s guess, this person is definitely counting on BUYING ON THE FUCKING DIP!

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