Jeff Gundlach " There's a lot money to be made from VIX"

DoubleLine CEO Jeffery Gundlach expects his bet for a decline in the S&P 500 will return 400 percent.

"I'll be disappointed if we don't make 400 percent on the puts, and we don't even need a big market decline for that to happen," Gundlach said.

He said that in his firm's analysis, volatility is so low that it can make a big return by buying put options — bets for a decline — on the S&P 500 for December. "It's not really a bear call on the S&P 500. It's more of a bull call on volatility," he said.

As a result of the muted market performance, the CBOE Volatility Index (.VIX), widely considered the best gauge of fear in the market, has persistently held near historical lows around 10 or below.

"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."

The investor believes the VIX could double to 20, he said.

On June 29, the VIX jumped from below 10 to above 15 when technology stocks dropped.

Source: Bloomberg Pro Terminal

Trader Bozhidar Arabadzhiev

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