It was an interesting move we saw in US markets yesterday, especially the volatility space. VIX index surged the most in a long time, climbing almost 30% from day lows, before investors once again started buying the dip, and VIX “calmed” down.

The close to close move itself was not that big of a deal, but the intra day price action in VIX felt a bit “panicky”. We have not seen this type of reaction in VIX since late last year.

Is this a “sign” that VIX can go higher?

The move in VIX during the day was rather extreme to put it mildly. The SPX did move lower, but we would not call it a “crash”. From highs to lows, the SPX moved lower by 1.6%, over 3 hours. For some reason we “felt” a déjà vu from some of the moves we saw in the VIX during the autumn panic. We would not be surprised if the crowd is once again rather short volatility, all hunting for “easy” yield.

VIX futures non-commercial net total positioning shows the crowd once again short the VIX. Over past market turning points, the crowd has been caught wrongly, long VIX when VIX has peaked, and vice versa.

The image below shows the greed and fear chart via CNBC. Greed has been slightly higher, but being bullish markets and short VIX is not a unique view here. We would be inclined at looking for cheap optionality, just in case the crowd is wrong, again.

Source, charts by Bloomberg and CNBC