Volatility is Dead, Long Live Volatility

Very stressed

The SDEX index is not far from where it closed during the early August panic. As we have explained: the crowd is very long the market and are in desperate need of buying downside protection. This demand re-prices the downside higher in relative volatility terms. Dealers are left short the downside, and they will magnify volatility should the market sell off quickly (due to dynamic delta hedging as they become short gamma).