The VIX index represents the market’s expectation of forward-looking volatility.

The VIX index has reached levels only just shy of those seen at the peak of the 2008 financial crisis, reflecting major market and economic stability concerns.

VIX Historical Index
Historical Index – VIX 02/04/2020 11:00am , Source: Bloomberg

It is interesting to note that traders are pricing in a long-term bear market according to the VIX curve.

The Bloomberg chart below illustrates furious buying of not just April contracts, which is expected given the conditions, but also months ahead into the year’s end. This is a clear signal that traders are not expecting the wild price swings to stop any time soon.

VIX Futures
Futures Curve – VIX 02/04/2020 11:00am , Source: Bloomberg

Banks are already pitching long term S&P volatility as proxy edges to clients and we are starting to see clear signs of cross-over buying from credit investors who are using the VIX as a hedge against illiquid holdings.

It is very possible that we may see volatility levels peaking beyond that of the 2008 financial crisis.