The VIX, a measure of S&P volatility usually drops when the market rises. Yesterday, despite a huge rally on news that the Senate had reached agreement on a tax bill, the VIX spiked.

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Today, equities are down sharply and the VIX up sharply on news former national security adviser Michael Flynn would implicate members of President Donald Trump’s transition team in the probe into Russian meddling in the 2016 election.

This two-day move enabled the "50 Cent Elephant" to escape an enormous VIX bet with minimal losses.

A trader who’s known as the Elephant for making big moves in the VIX -- but who’s been surprisingly quiet in recent weeks -- returned with a vengeance to start December, buying and selling more than 2 million contracts Friday to continue betting on a modest rise in the Cboe Volatility Index.

That’s three times the average daily volume for all VIX options.It’s also a good day for “50 Cent” -- the options buyer who’s been saddled with the same nickname as rapper Curtis Jackson III for buying options at or close to 50 cents.

Early on Friday morning, 50,000 January VIX call options with a strike price of 21 were purchased at 49 cents apiece before the Flynn tumult began.

Pravit Chintawongvanich, head of derivatives strategy at Macro Risk Advisors, said the investor had been poised to lose $20 million to $30 million on the December leg of this trade before Friday, but was able to escape with a loss of less than $2 million in closing up those positions.

“They got really lucky with the selloff today,” Chintawongvanich said. “They were down a lot on the December position, and this allows them to get out of it without too much of a loss.”

The mystery trader also initiated positions in January VIX options to roll over this trade, selling 262,500 puts with a strike price of 12 and 525,000 calls with a strike price of 25, while purchasing 262,500 calls with a strike price of 15.

Mystery Trader

On August 8, I commented on a December VIX options bet by billionaire bond guru Jeffery Gundlach in Is Gundlach Really Bearish? (Here’s a Hint: No) .

“I think going long the VIX is really sort of free money at a 9.80 VIX level today,” Gundlach said. “I believe the market will drop 3 percent at a minimum sometime between now and December. And when it does I don’t think the VIX will be at 10.”

"I’ll be disappointed if we don’t make 400 percent," said Gundlach.

I do not know if this is the same person or not, but Gundlach isn't really bearish.

Gundlach commented that If stocks fall (they didn't), “It will be contained and you can buy it.”

I commented, "Wow, talk about embracing the bubble."

Mike "Mish" Shedlock