Equity Volatility Jumps Most Since April 2025 Tariff Turmoil

(Bloomberg) -- The cost to hedge against the biggest S&P 500 plunge in more than a year soared on Thursday as traders sought cover from further wild swings.

The Cboe Volatility Index, or VIX, measuring expected volatility in the US benchmark and a key gauge of market stress, rose the most since April 2025 as the S&P 500 dropped 4.4% and the Nasdaq 100 slid more than 6%. The cost of VIX options rose even more, jumping faster than at any time since the Volmageddon episode in 2018.

The stress was most apparent in short-term contracts. The backwardation, or premium of first-month to second-month VIX futures contracts, reached the highest level in almost a year. In S&P 500 Index options, the contracts that feed into the VIX calculation, bid-ask spreads widened out, another sign of market stress.

"Generally hedges bought and added, while we saw some dip buying in spots, the vast majority of flow was monetizing/rolling/adding protection," said Daniel Kirsch, head of options at Piper Sandler. "Toward the close was the first time it felt like capitulation, with the spike higher in fixed strike volatility."

Overall volume of VIX options was triple the 20-day average and at 3.13 million contracts was the highest since volatility spiked in August 2024 when the market plunged on the unwinding of the yen carry trade. But the trading wasn't all one way. The VIX put-call ratio was around 0.7, the highest since July, signaling that investors weren't just chasing calls all day.

Meanwhile, the Cboe NDX Volatility Index, a version of the VIX based on the Nasdaq 100 Index, soared to its highest level since April 11, 2025, during that month's tariff driven turmoil.

"Markets were wide," said Jason Coogan, a floor trader a Simplex Trading. "Every rally in market was met with resistance."