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How VIX ETP Rebalancing May Have Amplified the February 2018 Spike

Article Quant Q&A · Author: Tim
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Summary

The discussion asks whether manipulation of SPX options or equity and volatility futures caused the February 2018 VIX spike, and what data could help investigate. The response points to volatility-linked exchange-traded products as a possible source of additional buying: XIV and SVXY had to rebalance before the close, and rapid price moves may have driven them to buy VIX futures to reduce leverage. This offers a market-mechanics explanation for how product flows could amplify volatility-futures moves.

The answer does not establish manipulation or provide a method for testing that claim. It suggests examining trading across the relevant instruments and identifies a market-data analyst as a possible resource, but gives no specific datasets or analysis procedure. Its comparison with a VXX short illustrates that leveraged or short volatility exposure can suffer severe losses when volatility rises; it does not resolve the cause of the event.

Key ideas

  • Volatility-linked products may have added to VIX futures buying as they rebalanced near the close.
  • The answer presents this flow as a possible amplifier of the February 2018 move, not proof of manipulation.
  • Investigating the event would require examining trading across SPX options, equity futures, and VIX futures.
  • Short volatility positions can face rapid losses when volatility rises sharply.

Tags

VolatilityFuturesOptionsMarket microstructureRisk management
Full text
# Can any tell me how the VIX spike in Feb 2018, might have been caused my manipulation of $SPX options or VX Futures?


# Can any tell me how the VIX spike in Feb 2018, might have been caused my manipulation of $SPX options or VX Futures?












Looking for ways to back track evidence of manipulation in the trading or SPX options, ES Futures, or VX Futures to cause the spike that destroyed the vol ETFs (XIV, and SVXY), and caused small investors to loose millions.

What kind of market data would be needed to piece this together and where to get it we get it?

Please help restore order to the markets. If these guys/girls get away with this, they can do it anytime. Next time it could be your account. TIA

## Answer by Yannick (score 2)

https://quant.stackexchange.com/a/38138

The acceleration in buying volatility itself between 16:00 and 16:15 was in partly due to the XIV and SVXY instruments themselves. They need to re-balance their holdings before 16:15 every day. Since of the velocity of the trading prior to close, they had to buy millions of dollars of VIX futures to delevrage and equilibrate their positions which almost doubled in size.

I understand this is frustrating but the same result would have been hit if had shorted VXX in a margin account. When the value of your VXX short doubles, you are left with nothing (and your broker will automatically sell your position through a margin call).

With regards to your question on who can help you analyze the tape in different securities to check for manipulation: Right away I'm thinking of Eric Scott Hunsader from Nanex LLC. He was a key player in doing the same for the flash crash in 2010.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.