From CoinDesk · By Omkar Godbole
Wall Street’s fear gauge, VIX, surged 21.5% Friday as stocks fell. Traders are betting the fear index will stay elevated through November.
Historical data suggests Friday VIX spikes typically ease on Monday.
Bitcoin remains above $80,000 over the weekend, with its own fear gauge, BVIV, pinned in familiar ranges, showing no signs of market stress.
Wall Street's fear gauge, the VIX index, ripped higher on Friday as stocks tanked on AI and geopolitical worries. Bitcoin BTC$81,030.77 traded choppy.
Traders are betting the fear gauge keeps climbing.
However, if VIX history and bitcoin’s steady weekend price action are any guide, the panic could subside just as quickly on Monday.
First, a quick primer. Cboe’s VIX measures how much traders expect the S&P 500, the blue-chip stock index, to swing over the next four weeks. It's derived from options prices. When people get nervous, they buy options, which are contracts used to hedge against price swings. That pushes the VIX up.
Bitcoin BTC$81,030.77, meanwhile, is the only macro asset thats trades over the weekend. As such, swings in bitcoin over the weekend are often seen as lead indicators of how traditional markets may open on Monday.
Friday’s VIX surge
On Friday, the VIX jumped 21.5% to 19.99 as the S&P 500 fell by 1.09%.
That's VIX’s biggest one-day rise since June 5, when the S&P 500 suffered its worst day in months, according to data source TradingView.
Traders are betting the VIX stays high through November. CNBC reports that traders bought 9,200 of the Nov. 18, 20-strike calls for $1.7 million. Traders also bought 12,500 of the Nov. 18, 23-strike calls for $1.1 million. The bet is that the VIX closes above 23 by the third week of November.
That sentiment is consistent with the present macro developments. AI stocks have been hit hard in the week gone by. The cost of default insurance on AI-related firms has hit record highs. Geopolitics is pushing oil higher too. On Saturday, Iran's Revolutionary Guards said two oil tankers caught fire after hitting mines in the Strait of Hormuz. The Russia-Ukraine front looks like it's heating up as well.
VIX history favors a Monday reset
Big Friday jumps in the VIX usually don't last, according to historical data.
CoinDesk's analysis of the data finds the VIX has jumped 20% or more on a Friday 32 times since January 1990, not counting the latest one. The next Monday, it fell 25 times and rose just seven.
In other words, investors slept over the Friday panic over the weekend and things normalized on Monday. The typical Monday move was a drop of 4.5%. A month later, the VIX was lower in 25 of the 32 cases, and the median drop was 16%.