The VIX climbed to 40.79, its highest closing level since April 23. It posted its largest daily point gain since March 16, amid the fall that marked the end of the nearly 11-year bull run in US stocks.
The S&P 500 ended Thursday down 5.9%.
Some investors said they thought the decline was long overdue given expectations of a slow recovery, which Federal Reserve chairman Jerome Powell said in his remarks on Wednesday.
“We have been cautious with stocks for quite some time,” said Anwiti Bahuguna, head of multi-asset strategy and senior portfolio manager at Columbia Threadneedle Investments. “In no case is the viral threat over, in addition to the fact that we are not going to recover quickly. ”
Indeed, despite a strong increase in stocks in recent weeks, volatility expectations have remained high. The VIX rose on Monday even as the S&P 500 gained 1.2% and temporarily wiped out its losses since the start of the year.
Speculative buying activity likely increased demand for protection down and helped push up the VIX even before stocks fell later in the week, said Don Dale, chief risk strategist at Equity Risk Control Group.
“There was more interest in the cover now that we were back unchanged” on the S&P 500, he said.
As stocks rose, so did call buying, the options used to position themselves higher in stocks. On Monday, the 20-day moving average of the put options option used for downside protection to calls on the S&P 500 was close to its lowest level since 2014, according to Susquehanna Financial Group.
Retail investors likely drove much of the purchase purchase, said Christopher Murphy, co-director of derivatives strategy at Susquehanna, given the resumption of odd lot transactions – less than the typical 100 contracts – opening and closing the same day.
This activity however fell on Thursday in the wake of the liquidation of stocks.
“Institutional money is a little less convincing now, and they are potentially not as involved,” said Murphy. “If you see the retail business starting to relax, it will have a real impact. “
Report by April Joyner; Editing by Ira Iosebashvili and Alistair Bell
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