- Know your history — learn about some of the craziest options trades ever…
- Who traded them, how the trades happened, and how much money was allegedly made
- What traders can learn from these remarkable wins…
Hey, Evolver.
First and foremost, I’d like to wish everyone a happy belated Labor Day. It’s important to take a moment to honor all of the people who work so hard in this country.
Speaking of labor — options trading is hard work, albeit a different kind from physical labor. But if you develop a thesis, form a plan, and execute a successful options trade, that’s a job well done. And we all deserve some rest from time to time.
On that note, I think it’s appropriate to take a break from our normal lesson plan today. Instead of going over my trades, let’s take a look at five of the greatest options trades of all time.
Paul Tudor Jones Makes $100 Million Shorting the Stock Market
These days, Paul Tudor Jones is a household name in the trading world.
But in the mid-1980s, he was just another young trader trying to make a few bucks in the options pits…
By the midway point of 1987, Jones began to see something that others didn’t — the S&P 500 was wildly overvalued.
Studying historical market data, Jones decided that valuations were too high compared to the interest rate environment at the time. Rates were near 10%, while stocks were returning 5% annually.
So what did Jones do? He bought a spattering of put options on the major indexes. And the rest is history…
On October 19, 1987, the Dow Jones plunged 22% — while Jones bagged approximately $100 million on the trade.
He tripled his net worth and made himself an options trading legend in the process.
Andy Krieger Makes $300 Million Shorting the Kiwi
While Jones was busy shorting the U.S. stock market, a trader named Andy Krieger was eyeing a different setup overseas.
Krieger was preparing to put a massive short on New Zealand’s dollar, sometimes called the kiwi…
By the tail end of 1987, the fall of the U.S. stock market had depressed the U.S. dollar and driven investors to speculate on other currencies.
The kiwi had been bid up to astronomical levels, and Krieger saw a slam-dunk short setup developing in front of him.
Krieger had so much conviction in his thesis that his sell orders exceeded the entire New Zealand money supply. He shorted every kiwi he could get his hands on…
Over the following few weeks, the kiwi plummeted as much as 5%. Meanwhile, Krieger made $300 million for his employers and cemented his place in the annals of options trading history.
Nassim Nicholas Taleb Makes $1 Billion in a Day on SPY Puts
Best-selling author Nassim Nicholas Taleb is no stranger to options traders. He has written some incredible books about risk management and derivatives strategy. Better yet, he puts his money where his mouth is…
Just like me, Taleb has a negative bias. His strategy revolves around constantly buying bearish, out-of-the-money contracts.
Most months, he loses a small amount of money. But whenever the market experiences big moves to the downside (or exaggerated volatility) — Taleb makes a fortune.
In the late summer of 2015, Taleb was doing his usual thing, buying cheap SPY puts and VIX calls.
Then on August 24, the S&P 500 tanked 8% while the VIX surged 50%.
As the rest of the market was panic selling, Taleb’s entire portfolio increased 20%. He profited more than $1 billion in a single day.
Ruffer Makes $2.6 Billion in Pandemic Sell-Off
In late 2018, a mystery trader started gathering attention online due to their huge block buys of cheap VIX calls.
This trader had a habit of buying enormous tranches of volatility insurance contracts for 50 cents. This earned them the nickname ‘50 Cent.’
In April 2020, when the market crashed due to the pandemic, the world found out who ‘50 Cent’ was all along…
It turns out the huge VIX buyer was none other than London-based hedge fund Ruffer Investment Management.
Ruffer had purchased an eye-popping amount of volatility insurance from 2018 to 2020.
Take a look at the profits netted from each leg of the position:
- VIX calls — +$800 million
- Corporate bond puts — +$1.3 billion
- S&P 500 and Euro Stoxx puts — +$350 million
- Gold hedges — +$145 million
When all was said and done — Ruffer bagged $2.6 billion in the pandemic selloff. Well played, ‘50 Cent.’
Michael Burry Makes Undisclosed Profit on GOOG Calls
While Ruffer was still popping champagne and counting profits from the massive pandemic insurance win, legendary trader Michael Burry was buying the dip…
Burry is best known for his famous credit default swap bet against the U.S. housing market. You may know that from the movie “The Big Short.”
But if you pay close attention to his 13F filings, Burry constantly makes interesting moves in the market. And he loves to use options to leverage his bets.
In August 2020, Burry laid out 36% of his entire fund to buy $118 million worth of Alphabet Inc. (NASDAQ: GOOG) call options.
Unfortunately, we don’t know what strike or expiration he purchased — but that doesn’t make much of a difference…
GOOG is up a whopping 97% since August 2020. We can only speculate, but Burry’s trade was probably a 5-bagger, if not a 10-bagger.
Most of this position was probably cashed out a while ago. If Burry still has any unexpired, longer-dated contracts — he’s sitting on astronomical gains.
Conclusion
What can Evolvers learn from these unbelievable trades?
There’s a valuable lesson that I’ve taken away from most of these stories — trust your gut.
Surely, all of these plays took major mental strength. The biggest winning trades are often the most psychologically difficult.
So if you have strong conviction in your trade … stick with it.
Know your history,
Mark Croock
Editor, Evolved Trader Daily
P.S.
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