Jeff Gundlach’s ‘free money’ trade on volatility is already paying off

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Jeffrey Gundlach, chief executive and chief investment officer of DoubleLine Capital,  speaks during the Sohn Investment Conference in New York May 4, 2015. REUTERS/Brendan McDermid Jeff Gundlach's 'free money' trade on volatility is already paying off Jeff Gundlach’s ‘free money’ trade on volatility is already paying off doublelines gundlach puerto rico represents only 1 percent of fund
Jeffrey
Gundlach, chief executive and chief investment officer of
DoubleLine Capital, speaks during the Sohn Investment Conference
in New York

Thomson
Reuters


Jeff Gundlach has nailed it again — at least for now. 

The CEO of DoubleLine Capital who’s sometimes described as Wall
Street’s ‘bond king’, told
CNBC
on Tuesday that betting on more stock-market volatility
was an easy way to make money. 

“I think going long the VIX is really sort of free money at
a 9.80 VIX level today,” Gundlach said, referring to the CBOE’s Volatility
Index
. Described as the fear gauge, it tends to trade in the
opposite direction to the S&P 500 and reflects traders’ bets
for outsized moves in the market. 

“I believe the market will drop 3% at a minimum sometime
between now and December,” Gundlach said. “And when it does I
don’t think the VIX will be at 10.” 

The VIX has shot up from a low of 9.52 on Tuesday to around
16 on Friday amid escalating tensions between North Korea and the
US. President
Donald Trump tweeted
early Friday that US military solutions
were “locked and loaded” if North Korea acted
“unwisely.” 

Gundlach said that alongside the market’s decline, the VIX
could rise to as high as 20. This call is less of a
wager on a stock market drop, and more of a bet that the quietest
market in decades would become more volatile, Gundlach
said.

As Business Insider’s Joe Ciolli
wrote
, betting against volatility was one of the most crowded
trades through Wednesday. With the VIX climbing, traders may be
forced to close out of those positions, and that would
hasten the index’s climb. 

In July, Gundlach’s firm bought some
five-month put options
on the S&P 500 amid the stock
market’s calm that took the VIX to its lowest level since 1993.
The trade, Gundlach told Reuters, was “like free money.”



Screen Shot 2017 08 11 at 8.40.54 AM Jeff Gundlach's 'free money' trade on volatility is already paying off Jeff Gundlach’s ‘free money’ trade on volatility is already paying off screen 20shot 202017 08 11 20at 2084054 20am


The VIX, or stock market
fear gauge, has spiked to the highest level since the
presidential election.


Markets
Insider





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