Volatility

Throwback Thursday: Vixmaggaedon

Last year around this time, stocks had just given investors a 6% return in the month gone by, after posting 21% in 2017, after averaging about 15% per year in the eight years before that. It seemed like all systems go – business as usual – with a benign VIX reading of 13.50 showing markets expecting annualized volatility over the next 30 days of just 13.5%.

Q4 hedge fund letters, conference, scoops etc

Volatility

Mediamodifier / Pixabay

Just five days later, on February 5th, 2018 – the tables turned in a big way, and we were left with a new term in the investment landscape – Vixmageddon. Out of the blue, the financial market’s so-called fear gauge, the VIX, spiked more than 100% to go above 30 for the first time since 2011!

Left in the VIX’s wake: more than $4 billion or so in assets invested in exchanged traded products that tracked the VIX, with the majority of that on the short (read: wrong) side of the move. A near billion dollar mutual fund selling volatility via options forced to close, allegations of market manipulation in VIX futures, and a stunned market, which was left wondering after seeing the Dow drop 1,000+ points, whether the fear index reflects moves in the stock market, or whether the stock market is now reflecting moves in the VIX.

Are we more prepared for such a move today than we were a year ago? Were lessons learned? We’re not so sure, so before we all forget just what a VIX spike can look and feel like, here’s a roundup of our VIXmageddon coverage a year ago:

Article by RCM Alternatives


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