30-Minute VIX Frenzy Exposes Obsession With Volatility Hedging
Among the many scary things traders witnessed as stocks plunged last Monday, one of the most harrowing was the sight of the VIX, an index designed to measure investor fear, briefly going dark.
For almost 30 minutes as hundreds of billions of dollars were erased from equities, no signals were sent by the world?s most popular sentiment gauge as options prices turned erratic. When it switched on, the VIX jerked higher faster than anyone had ever seen, rising 82 percent on its first tick to 51, a level not reached since the financial crisis.
?Seeing the VIX at 50 was just chaotic,? said Michael Antonelli, an institutional equity sales trader and managing director at Robert W. Baird & Co. in Milwaukee. ?It?s not like there was a headline that a bank had filed for bankruptcy or a major corporation was teetering on the brink. Why did it move that much??
Nothing could?ve kept the Chicago Board Options Exchange Volatility Index from jumping Monday morning: global markets were buckling, China?s stocks had plunged 8 percent and companies like General Electric Co. were in free fall. And nobody?s saying the VIX broke or acted in a way that wasn?t predictable, given the array of forces that act in the markets it reflects.