By Yakob PeterseilThe Cboe Volatility Index surged to the highest since 2008 on Monday as a plunge in oil prices frazzled traders already on edge over the coronavirus.The VIX, which measures the 30-day implied volatility of the S-P 500 based on out-of-the-money options prices, jumped as high as 62, its highest level since December 2008 on an intraday level.The S-P 500 fell 7% at the open, triggering a trading halt the New York Stock Exchange put in place after the 1987 Black Monday crash.
Cboe didnt start updating the VIX until around 9:50 a.m.
New York time, after a delayed opening for S-P 500 products.BloombergThe VIX was already clocking eye-watering levels last week, as stocks were whipsawed by virus headlines.
On Friday, it surpassed 50, a threshold last breached when the complex broke down in February 2018.
While those moves may appear extreme, over the past 10 sessions, the S-P 500s realized volatility is 63.A short squeeze may have added fuel to last weeks jump in volatility expectations, according to Tallbacken Capital Advisors LLCs Michael Purves.
Net speculative positioning in futures on the VIX still flashed short as of Tuesday, hours after the Fed made its emergency rate cuts, according to the strategist.With the aggressive sell off on Thursday and again Friday, that would likely have driven a lot of compelled VIX buying on Thursday and Friday if shorts were getting stopped out, he wrote in a note on Friday.Traders have also been piling into the biggest short-volatility exchange-traded product, adding $233.5 million over the past six sessions.
While inflows into the ProShares Short VIX Short-Term Futures ETF typically reflect bets that calm will break out, they may also be part of a hedging strategy or create-to-lend activity.Either way, anyone who had bet on market calm this week looks set for a world of pain.