Log in Open account
International
CFDs and forex (FX) are complex instruments and come with a high risk of losing money rapidly due to leverage. 62% of retail investor accounts lose money when trading CFDs with this provider. 
Show more
CFDs and forex (FX) are complex instruments and come with a high risk of losing money rapidly due to leverage. 62% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs, FX, or any of our other products work and whether you can afford to take the high risk of losing your money.
Show less
Market on edge: Surging volatility

Market on edge: Surging volatility

Equities 10 minutes to read
MicrosoftTeams-image (3)
Koen Hoorelbeke

Investment and Options Strategist

Summary:  In recent trading sessions and pre-market today, the VIX has surged dramatically, reflecting heightened market anxiety. With the VIX soaring and significant spikes in both the VVIX and Put/Call ratio, traders are bracing for substantial short-term market swings. Managing risk and avoiding panic selling are crucial strategies during this period of elevated volatility.

Market on edge: Surging volatility

In the last Thursday and Friday trading sessions, and pre-market today, markets have experienced a significant spike in volatility, sparking widespread concern among investors. The VIX, commonly known as the "fear gauge," has surged to levels not seen in recent times, reflecting a heightened state of market anxiety. This dramatic rise in volatility indicators, coupled with a spike in the VVIX and an elevated Put/Call ratio, underscores the current atmosphere of uncertainty. As markets grapple with these rapid changes, it is crucial for investors to understand the implications of these developments and adopt strategies to navigate this turbulent period effectively.

Also read: The perfect storm hits market and what comes next

Current Volatility Scenario:

The VIX, often referred to as the "fear gauge," has experienced a dramatic spike pre-market, soaring by 100.64% to a value of 46.93 (as of 12:12). This surge indicates heightened market anxiety and expectations of increased volatility in the near term. The VIX futures term structure is currently in backwardation, where near-term futures are priced higher than longer-term ones. This backwardation suggests that traders expect the current volatility spike to be short-lived but intense.

Below is a picture of the current VIX futures state:

2024-08-05-00-VXQ4-chart
Volatility futures show rapid rises
2024-08-05-01-VIXfuturesTermStructure
VIX futures term structure is in backwardation (front months are higher than back months)

The VVIX, the VIX of VIX

In addition to the VIX, the VVIX, which measures the volatility of the VIX itself, has jumped by 23.05% to 136.81 as of Friday's close. Values above 110 in the VVIX are considered significant and indicative of unusually high nervousness and volatility in the VIX itself. This elevation in VVIX highlights the significant uncertainty and the potential for sharp movements in volatility.
2024-08-05-02-VVIX-chart
VVIX shows nervousness at multi-year highs

Put/Call ratio

The Put/Call ratio, another key indicator of market sentiment, has surged to 1.96. A high Put/Call ratio implies that there are more put options being bought than call options, reflecting a bearish sentiment as traders seek protection against further declines.
2024-08-05-03-PutCallSPX-chart
PutCall ratio for the S&P 500 (SPX) showing multi-year highs

What This Means:

The current market conditions are indicative of significant panic and uncertainty. Elevated VIX and VVIX levels suggest that traders are bracing for considerable market swings in the short term.

The backwardation in the VIX futures term structure reinforces the expectation that this spike in VOLATILITY is a temporary reaction to current market fears. The VIX is a mean reverting index, meaning it will go lower again (ps: price action is NOT the same as volatility, so while volatility may decline, that is not a garantuee that the price will go up)

What To Do:

  1. Manage Risk: It's crucial to reassess your risk exposure. Ensure that your positions are not overly leveraged, as high volatility can lead to rapid and significant losses.
  2. De-Risk Where Needed: To avoid margin calls and potential liquidation, consider reducing positions in high-risk assets or leveraging products.
  3. Volatility Mean Reversion: Historically, volatility tends to revert to its mean. While the current spike is concerning, it is likely to decrease once the immediate panic subsides.
  4. Avoid Panic Selling: Making decisions based on fear can exacerbate losses. Instead, focus on a calculated approach to managing your portfolio.
  5. Short-Term Volatility: Be prepared for continued volatility in the very short term. Market conditions are likely to remain turbulent, so stay informed and ready to adjust your strategies as needed.

Conclusion:

In summary, while the current market environment is challenging, it's essential to remain calm and take a strategic approach to managing your investments. Volatility is a natural part of the market cycle, and while it can be unsettling, it also presents opportunities for those who are prepared.

Previous "Market on edge" updates

Quarterly Outlook

01 /

  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
    Read full article
  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

    Read full article
  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
    Read full article
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
    Read full article
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

    Read full article
  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
    Read full article
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
    Read full article
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
    Read full article
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
    Read full article
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...
    Read full article

Disclaimer

 The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15
2900
Hellerup
Denmark

Contact Saxo

Select region

International
International
Products & pricing
Platforms
Accounts & service
General
Other
Legal

All trading and investing comes with risk, including but not limited to the potential to lose your entire invested amount.

Information on our international website (as selected from the globe drop-down) can be accessed worldwide and relates to Saxo Bank A/S as the parent company of the Saxo Bank Group. Any mention of the Saxo Bank Group refers to the overall organisation, including subsidiaries and branches under Saxo Bank A/S. Client agreements are made with the relevant Saxo entity based on your country of residence and are governed by the applicable laws of that entity's jurisdiction.

Apple and the Apple logo are trademarks of Apple Inc., registered in the US and other countries. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.