Natixis: "The VIX Spike Corresponds To a 15% Market Crash"

Still shocked by the VIX surging over 50? Well, here's some good news: it could be worse, much worse. In fact, as Natixis' William Imbrogno calculates this morning, the VIX spike - the largest in history, and still rising - should correspond to a 15% market crash.

Here is the note from the director of equity derivatives flow at Natixis:

The VIX spike was the largest in history and should correspond to a 15% market move, the drop of 4% on the SPX should correspond to an increase in the VIX of 5 points.  

Showing the asymmetrical impact of the short squeeze on volatility given the dominance of Algo's, vol control, CTA's  and short volatility strategies.

Perhaps this is a strong case to reduce the reliance on systematic automated strategies in favour of active management?

 

 

Yes, "perhaps."

Or then again, perhaps it just shows that when the market is going up, nobody cares how or why - whether it's due to the Fed, algos, quants, machines or Joe Sixpack.

However, when it all goes terribly wrong, the fingerpointing immediately begins, with the first culprit - naturally - the robots, algos and quants. After all one must defend, distract and scapegoat away from that ultimate bubble blower, the Fed, at all costs.

 

Comments

Wahooo Tue, 02/06/2018 - 07:55 Permalink

15% is a crash??? Economies doung well, companies doing well, but Wall Street’s fucking with synthetics again. 15% is simply a technical shift in Wall Street fortunes.

goldinpenguin Tue, 02/06/2018 - 08:00 Permalink

so VIX and other hedges have successfully muted a 20%+ selloff to a modest 8%, so far

What happens to the financial integrity of corps that have gorged on high priced stock buy backs?

MusicIsYou Tue, 02/06/2018 - 08:11 Permalink

Wall Street gamblers are so funny how they get that stupid look on their faces when the Casino tables don't work in their favor. Haha the party is almost over with like when the Superbowl was over with. Parties don't last forever. 

Nomad Trader Tue, 02/06/2018 - 08:13 Permalink

it could easily fall 15% in a day. no problem at all. could it start today? i'll let you vote. upvote for market goes up over the next 36 hours. downvote if you think it takes a leg lower.

mendigo Tue, 02/06/2018 - 08:13 Permalink

If the fed were to permit a free market (ie do the right thing for a supposed democractic and capitalist government) it would crash. But then existance of the fed is symptomatic of fact that we are not free but controlled society.

To state the obvious. The surprise and hysteria is getting old.

Avichi Tue, 02/06/2018 - 09:31 Permalink

Classic FEAR Psychosis- Watch for President #TRUMP  drive another dagger into the FED manipulation and send FEAR- Today they NASA IS SENDING ANOTHER SECRET MILITARY SPACE MISSION. WARIII -T-100..99...98

"EMERGENCY WILL BE DECLARED"

MARTIAL LAW" DemocRATS and the CABAL(FED CABAL/ROTHCHILDS/CLINTON FOUNDATION/BERKSHIRE HATHAWAY/BILL/MALINDA FOUNDATION/HOLLYWOOD CABA/WALL-STREET CABAL/SILICON VALLEY CABAL) are going TO GO UNDERGROUND,OBAMA,CLINTON AND HER CRIME FAMILY ALONG WITH SOROS AND THE GANG ARE GOING UNDERGROUND. WE WILL HUNT YOU DOWN.

MILITARY INTELLIGENCE IN FULL CONTROL

THIS IS A WAR BETWEEN GOOD Vs. EVIL - PLANE AND SIMPLE

THESE BASTARDS HAVE TO BE PURGED AND ELIMINATED

GO #MAGA #TRUMP

A Likely Story Tue, 02/06/2018 - 10:23 Permalink

Sorry kids.  No doom and gloom for the market from the VIX move.  It was more layer upon layer of investment - long and short - in volatility that begat more buying and thus more climb once certain levels were reached.  When the credit markets panic then we'll see something interesting.  The only question is whether the idiots in the WH, Mnuchin especially, could handle a systemic crisis that is triggered from a broader market reaction in the same way.   It's a funny image of Mnuchin trying to convince Blankfein on responsive action.