We have seen a big risk off sentiment feed into the markets over past 48 hours. The Italian debt saga, Chinese chips hacking US companies, rhetorics from EU leaders and the fact that Fed did raise rates are just a few of the stories rattling markets recently.
Earlier this week, on Tuesday, we asked rhetorically if “VIX could be a cheap global hedge at these levels?”
What a difference a few days can make in the financial markets.
VIX has spiked over 30% since the lows we saw on Wednesday. As we have pointed out before, VIX is a mean reverting asset and has a natural floor. In times of complacency investors tend to get obsessed with pricing daily moves only, and tend to ignore pricing potential risks from a macro perspective.
Chasing protection is usually not a great trade, but we have to admit that during the last 24 hours spike in volatility, liquidity felt like it vanished. Big players will find it difficult to reshuffle risk as liquidity is poor in the underlying markets.
We saw a similar move occur in Europe with V2X spiking to levels not seen since early September. Last time V2X traded at these levels, Euro Stoxx 50 futures traded at the big 3300 level. 
The term structure of the Euro Stoxx 50 has popped higher, the entire curve is up as volatility has increased, as well as the short term maturities spiking even more relatively speaking. Orange is current the term structure curve, green how it looked a week ago. 
We have seen spikes in volatility across assets, not only equities. MOVE index (weighted Treasury volatility index) spiked rather violently during the past 2 days. 
Source: charts by Bloomberg
We have said it before and will say it again:
“Don’t buy volatility when you must, buy it when you can”
