Volatility

Inverse VIX ETPs drove the VIX "explosion." They have incurred large losses and have now delevered. VIX should therefore partially normalize. Institutional investors were "under-hedged" pre-event, and this will keep markets vulnerable to set-backs.

Index volatility, relative to single stock volatility, will normalize at a slower pace as stocks revert from the "super low" correlation regime. The (VIX futures) market has increased longer-dated volatility expectations by four volatility points (roughly +/–25bps more movement for the S&P 500 per day).