The story in August was the dramatic spike in volatility prices in the early morning hours of August 5th (https://www.risk.net/markets/7959870/pre-market-trades-blamed-for-record-vix-surge)
Unfortunately, by Monday morning, there had been global sell off, with Nikkei down -12.7% and it became prohibitively expensive to get significantly long volatility.
With the benefit of hindsight, we can now see that the hours-long volatility was exacerbated by thin liquidity conditions and that the pre-market VIX print was effectively meaningless, with front-month VIX futures declining while the cash index surged, indicating hedging demand was overstated, to say the least. Risk.net reported that market participants debated what triggered the intensity of the move, with some arguing underlying fundamentals alone could not explain the volatility and instead was driven by large trades of S&P 500 puts and VIX triggering dealers to widen spreads. But we can all see that it wasn’t a ‘real move’ based on the quick snap back of the overall markets over the following days.
It is important in these scenarios to not get caught in whip-saw trading moves. These short-lived moves do not have a basis in reality with the market itself and trying to adjust would cause a lot of flip-flopping back and forth without being able to see any one position through to profitability, not to mention increased transaction costs. Better to react to more days to weeks long moves in markets.
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