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A Mystery Investor Has Made A 262 Million Dollar Bet That The Stock Market Will Crash By October

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 Business Insider, 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.

Michael Snyder is a Republican candidate for Congress in Idaho’s First Congressional District, and you can learn how you can get involved in the campaign on his official website. His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on Amazon.com.

12 Signs That An Imminent Global Financial Crash Has Become Even More Likely

Time Spinning Skyline - Public DomainDid you see what just happened?  The devaluation of the yuan by China triggered the largest one day drop for that currency in the modern era.  This caused other global currencies to crash relative to the U.S. dollar, the price of oil hit a six year low, and stock markets all over the world were rattled.  The Dow fell 212 points on Tuesday, and Apple stock plummeted another 5 percent.  As we hurtle toward the absolutely critical months of September and October, the unraveling of the global financial system is beginning to accelerate.  At this point, it is not going to take very much to push us into a full-blown worldwide financial crisis.  The following are 12 signs that indicate that a global financial crash has become even more likely after the events of the past few days…

#1 The devaluation of the yuan on Tuesday took virtually the entire planet by surprise (and not in a good way).  The following comes from Reuters

China’s 2 percent devaluation of the yuan on Tuesday pushed the U.S. dollar higher and hit Wall Street and other global equity markets as it raised fears of a new round of currency wars and fed worries about slowing Chinese economic growth.

#2 One of the big reasons why China devalued the yuan was to try to boost exports.  China’s exports declined 8.3 percent in July, and global trade overall is falling at a pace that we haven’t seen since the last recession.

#3 Now that the Chinese have devalued their currency, other nations that rely on exports are indicating that they might do the same thing.  If you scan the big financial news sites, it seems like the term “currency war” is now being bandied about quite a bit.

#4 This is the very first time that the 50 day moving average for the Dow has moved below the 200 day moving average in the last four years. This is known as a “death cross”, and it is a very troubling sign.  We are just about at the point where all of the most common technical signals that investors typically use to make investment decisions will be screaming “sell”.

#5 The price of oil just closed at a brand new six year low.  When the price of oil started to decline back in late 2014, a whole lot of people were proclaiming that this would be a good thing for the U.S. economy.  Now we can see just how wrong they were.

At this point, the price of oil has already fallen to a level that is going to be absolutely nightmarish for the global economy if it stays here.  Just consider what Jeff Gundlach had to say about this in December…

And back in December 2014, “Bond King” Jeff Gundlach had a serious warning for the world if oil prices got to $40 a barrel.

“I hope it does not go to $40,” Gundlach said in a presentation, “because then something is very, very wrong with the world, not just the economy. The geopolitical consequences could be — to put it bluntly — terrifying.”

#6 This week we learned that OPEC has been pumping more oil than we thought, and it is being projected that this could cause the price of oil to plunge into the 30s

Increased pumping by OPEC as Chinese demand appears to be slackening could drive oil to the lowest prices since the peak of the financial crisis.

West Texas Intermediate crude futures skidded through the year’s lows and looked set to break into the $30s-per-barrel range after the Organization of the Petroleum Exporting Countries admitted to more pumping and China devalued its currency, sending ripples through global markets.

#7 In a recent article, I explained that the collapse in commodity prices that we are witnessing right now is eerily similar to what we witnessed just before the stock market crash of 2008.  On Tuesday, things got even worse for commodities as the price of copper closed at a brand new six year low.

#8 The South American debt crisis of 2015 continues to intensify.  Brazil’s government bonds have been downgraded to just one level above junk status, and the approval rating of Brazil’s president has fallen into the single digits.

#9 Just before the financial crisis of 2008, a surging U.S. dollar put an extraordinary amount of stress on emerging markets.  Now that is happening again.  Emerging market stocks just hit a brand new four year low on Tuesday thanks to the stunt that China just pulled.

#10 Things are not so great in the United States either.  The ratio of wholesale inventories to sales in the United States just hit the highest level since the last recession.  What that means is that there is a whole lot of stuff sitting in warehouses out there that is waiting to be sold in an economy that is rapidly slowing down.

#11 Speaking of slowing down, the growth of consumer spending in the United States has just plummeted to multi-year lows.

#12 Deep inside, most of us can feel what is coming.  According to Gallup, the number of Americans that believe that the economy is getting worse is almost 50 percent higher than the number of Americans that believe that the economy is getting better.

Things are lining up perfectly for a global financial crisis and a major recession beginning in the fall and winter of 2015.

But just because things look like they will happen a certain way does not necessarily mean that they will.  All it takes is a single “event” of some sort to change everything.

So what do you believe will happen in the months ahead?

Please feel free to join the discussion by posting a comment below…

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