Investor Makes Mammoth VIX Bet That Could Pay Out $265 Million

sle said:
Of course, since it's a risk reversal, what he holds at expiration is less then his maximum delta pivot. A totally realistic scenario is where he's got delta one(ish) against his 15s and VIX quickly rallies above the 25 strike
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Can you kindly explain what you just posted to a lay person?

A related question for all of you: If he/she hedge his/her trade, would he/she still be able to make $265M at expiration, if not what would his/her profitability be like?

Thanks.
 
Isn't it easier to look at this as a short 12-25 strangle combined with a long 15-25 call spread... even money, or even a bit of credit?

So I think he's expecting on expiry it's between 15-25, but didn't want to make any initial payment, so sold the strangle. He'll be sitting tight and hedging above 30?

Or if it's starting to move above 20, maybe he'll buy futures to cover for losing delta's due to gamma, and that way, @ironchef, he might make more than that 265m...

Surely there will be some more volatility after summer... so the short 12 put wouldn't be much of an issue....

This all changes a bit when he is already holding a short postition in Oct Vix futures. Which makes more sense to me. He'll make more when the Vix stays around this level, or even goes up slighty... and he's still fine when it shoots to say 20+...

As always, we don't know the starting point and therefore are slightly in the dark as to his strategy.
 
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Martinghoul said:
As of last nite's close (VIX official settlement of 11.70), these were the option closes:
12 puts - 0.65
15 calls - 1.64
25 calls - 0.56

If my arithmetic is correct, that translates to a mtm PNL of arnd $1.8MM.
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Update on the Mammoth

As of last nite's close (VIX settlement of 10.73):
12 puts - 0.51
15 calls - 1.20
25 calls - 0.30

So the whole structure is worth 0.09, which means arnd 0.22 further positive mtm PNL since last update.
 
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