Confused by the technical details surrounding the volatility-tail that is wagging your 401(k)’s dog of a portfolio in an irrational manner? Well, you’re about to lose your mind.
While the mainstream media will ‘sell’ the idea that stocks rise on ‘earnings’ or ‘the economy’, most by now realize that the marginal move in stocks is always about the marginal buyer or provider of liquidity.
Yesterday’s short-vol-trade-collapse should have slapped that awareness into more than a few market participants who got a glimpse behind the curtain at what really drives stocks.
Today we see VIX continuing to rise again, ETFs halted and redemptions suspended, and judging by the options market, it is far from over…
Vol-of-vol, as measured by the VVIX (the implied vol of 1m VIX options) climbed to 177.3 on Monday, 05-Feb, its highest level of all-time.
The spike surpassed the previous high of 169.8 realized on 24-Aug-2015.
And the VIX term structure is notably inverted/backwardation…
Interestingly, the current level of the VIX 1m future reached 33.2 at the close on 05-Feb, notably higher than the 25.1 level realized on 24-Aug-15. For reference, the VIX 1m future exceeded today’s 33.2 level during the 2008, 2010, and 2011 selloff events.