Loading ...When everyone is on one side of the volatility boat, it is much more likely to tip over. Short and leveraged volatility ETNs contain implied short gamma requiring them to buy (sell) a non-linear amount of VIX futures the more volatility rises (falls). The risk of a complete wipe out in the inverse-VIX complex in a single day is a very real possibility given the wrong shock (as Artemis first warned in 2015). The largest one day move in the VIX index was the +64% jump on February 27, 2007. If a similar move occurred today a liquidity gap would likely emerge.Volatility and the Alchemy of Risk
The markets are not correctly assessing the probability that volatility reaches new all-time lows in short term (VIX <9 in 2017), and new all-time highs in the long term (VIX > 80 in 2018-2020)
Reflexivity in both directions is very hard to conceive. Volatility is low and can go lower this year absent any catalyst. Rising interest rates, wage inflation, and credit issuance are very real catalysts in the long-term