ADVERTISEMENT

Volatility Gauge Tops 50 for the First Time Since Volmageddon

Volatility Gauge Tops 50 for the First Time Since Volmageddon

(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.

Volatility Gauge Tops 50 for the First Time Since Volmageddon

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.

To contact the reporter on this story: Luke Kawa in New York at lkawa@bloomberg.net

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Dave Liedtka, Brendan Walsh

©2020 Bloomberg L.P.