Panic strikes markets today again with volatilities exploding. The past 2 days has seen a huge increase in equity vols across indices. VIX is up 50% over past 48 hours, putting in the biggest move higher since the December panic.
As usual, people got pushed into believing nothing will ever move. With the current bad liquidity, hedging is not easy. Chasing VIX at these levels is probably a very late trade, but investors are once again reminded that prudent risk management is vital for trading.
Eurostoxx 50 volatility index started the move higher before the VIX, and has spiked big time over past 48 hours as well, but the percentage move is smaller than the VIX.
We can clearly see the VIX is “outperforming” the V2X and the emerging markets “VIX”, VXEEM. Chart is in percentage terms, VIX orange, V2X yellow, VXEEM white.
The below chart shows the SPX and the VIX index. Due to the mean reverting feature of volatility, the logic below is slightly “wrong”, but last time VIX traded here the SPX was 250 handles lower.
Irrespective of the recent VIX spike, the risk management aspect of your portfolio is the single most important factor to asses, especially when markets start to move like this.
Source, charts by Bloomberg
