The CBOE Volatility Index, known as the “fear gauge,” spiked on Monday as investor worries over market instability and technology glitches mounted. The index rose 28%, to 19.03 from a close of 14.85. While that’s a significant jump, the VIX is still below the critical level of 20, which it has crossed only occasionally in the past year.
Market analysts attribute this upsurge to increasing uncertainty about the DeepSeek program in China which is expected to shape the future direction of artificial intelligence. The shocking surge in volatility has made it necessary for investors to hedge their losses. Many of those investors who had bought inexpensive VIX call options are making money now, as global technology stocks plummet dramatically. For example, the fall has shaved $400 billion in market value off of Nvidia Corp. alone.
Demand for call options on the VIX skyrocketed last week with over 200,000 purchases of February 22 and 23 calls. These high levels influenced market dynamics by sending call premiums to near-historic highs according to data providers Cboe Global Markets, while demand has surged in increasing apprehension as the market readies for downsides.
In addition to the volatility in equities, cross-asset implied volatilities declined last week as risk assets rallied. However, the trend was reversed when growing concerns about tariffs and geopolitical events during the weekend crept in. Volatility in crude oil prices is still a focus area, and this is an increase in protective put options as the prices have fallen. The MOVE Index-the very important measure of interest rate volatility-is now at near one-year lows.
Analysts are firm on the view that markets are delicate to macroeconomic imbalances, policy shifts, and rapid changes in the AI sector, which will influence future market trends as investors navigate these markets.
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