5 August 2024, before the US open. The VIX printed 65.7, its largest intraday jump on record. VIX futures stayed below 35.
Why the index and the market split
The VIX is not a traded price. It is a formula applied to SPX option quotes. Before the open, some deep out-of-the-money puts were quoted with bid-ask spreads above 80% of their mid-price, against about 25% on other days. Volume was not unusually high. Wide quotes on thin options were enough to push the formula up. The futures, where risk actually changes hands, priced a much smaller move.
How it ended
The VIX closed at 38.6 that day, and at 15.2 ten days later.
What it says
A volatility index is a measurement, and measurements have conditions. Before reading a print, check what it was computed from, and whether anyone traded at that level. This is the same discipline as reading the futures gap rather than the headline gap.
Sources: BIS Bulletin No. 95; SEC staff working paper on the VIX surge of August 2024. The episode is also on the From the desk page.
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