(Bloomberg) -- The Cboe Volatility Index has surpassed 50, a threshold last breached when the complex broke down in February 2018.
The VIX, as it is known, measures the 30-day implied volatility of the S&P 500 based on out of the money options prices. The so-called “fear gauge” at this level implies a more than 3% move in the benchmark U.S. stock gauge for each session over the coming month.
As elevated as that level is by historical standards, a VIX at 50 is still insufficient to provide a cushion if recent price action persists. Over the past 10 sessions, the S&P 500’s realized volatility is 53.
On Feb. 5, 2018, a massive spike in volatility futures after a long period of tranquility felled many exchange-traded products that let traders bet on enduring market calm. The feedback loop between these ETPs and the volatility market exacerbated the damage. Liquidity conditions were so poor during “Volmageddon” that the VIX Index actually peaked the following session.
Needless to say, this is terrible news for traders that rushed to short volatility after the spike at the end of February.
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