Reminiscent Of The 2018 ‘Volmageddon’ Event

Reminiscent Of The 2018 ‘Volmageddon’ Event: Tom Essaye Quoted in Morningstar

‘Volmageddon 2’ may be coming to a stock market near you, says this analyst

An important reason why the S&P 500 dropped 1.4% on Tuesday, according to Essaye, was an an overcrowded short side of the options market, which exacerbated the selling.

The action, says Essaye, “was reminiscent of the 2018 ‘Volmageddon’ event that ultimately resulted in several ‘short-volatility’ ETF’s being forced to liquidate as volatility exploded higher amid a more than 10% drop in the S&P 500 in just two weeks.”

“Fast forward to late 2023 and early 2024 and we are once again seeing similar, volatile price action into certain derivatives expirations, namely the monthly VIX futures expirations,” says Essaye. The chart below shows the sharp gap-down sell-offs for the S&P 500 into each of the last three VIX expirations.

Also, click here to view the full MarketWatch article published on Morningstar on February 16th, 2024. However, to see the Sevens Report’s full comments on the current market environment sign up here.

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