Raw Transcript: 2025 Market Crash Explained: Why the VIX Spiked 45% in One Day

the best option drive 2025 >> market analysis following liberation day. I think we have two on each of these um segments that we're going through today. We're doing kind of a best of recap, give you some food for thought from some of our favorites throughout the year here. So, uh this was our market analysis following the liberation following liberation day. Uh a lot of people were liberated from their money for that quick period of time. Uh but the rest of us it was uh liberation day April 8th 2025 [cough and clears throat] is when we aired this segment here. Let's do it. So over the past over the 44 days leading up to liberation day the S&P 500 and the NASDAQ fell 17 and 22% respectively levels not seen since the co era selloff. So, you know, this was uh yet another one of the Armageddon type situations where it felt like, you know, we were we were dead. This this was a wild move when you look back in hindsight. Um, you know, some of the older folks will tell you, you know, you've never traded through a crash, you've never seen this. You know, you get you get a chart like this, you can you could show them this and say, "Hey, Grandpa, you know, I had three of these in five years." >> Right? You're right. I guess on the grandpa's side. [laughter] >> Yeah. Yeah. >> But uh it was a huge move obviously. So historically only 11 occurrences where the NASDAQ fell 22% or more in 45 days. So there's only been five occurrences where the S&P fell 17% or more. So, you know, these are I I think this is good context for people to understand because, you know, the the the hardest thing about markets is like that fear of the unknown and the fear of the crash and the black swan and the Michael Bur and the blah blah blah. And so, if you traded through this and if you traded through COVID, you've kind of experienced some of the worst moves. I mean, you're in the top 10 historically, you know, like it doesn't get a lot much more worse than that. Like those are th that's what you should expect as kind of your big moves. Can it be bigger? Of course. And there can be more extreme moves, but I think this puts a little bit of context for you to kind of, you know, quantify what it feels like and what it looks like to to have that black swan type event. I think the, you know, April and COVID in my book quant qualify as black swan events. >> Okay. Yeah. I mean, there is no real definition to it, so it's a personal thing. I I I would I tend to agree with you. I mean there, you know, 87 was the event and that's been the biggest one. >> Sure. That that's what it's going to be. That's what it's going to be uh measured by. Sure. >> Yeah. So, you know, can we have another one? Of course, that is a probability. When we look back at what we have had, >> these have been pretty severe, you know, relative >> uh draw down. So, you I I I think it just adds good context. I think that's why we included this good one. That's right. >> Uh, next slide here. So, following liberation day, the S&P 500 dropped over 10% in just two days with similar moves across major indices. Such extreme 2-day declines have occurred less than.1% of the time historically. So, you know, when you see these 10% moves in a in a 2-day time frame, these are very rare occurrences. Two, three, four standard deviation type occurrences. And so, you know, that's kind of uh it's a good data point for you to understand, you know, what what your uh you know, what the downside risks are. A realistic expectation for downside risks. >> That's correct. >> I don't think anybody can play for the next 1987. No, >> I I don't even think if you are bearish it really is a good thing for you either, you know, like I don't think anybody really benefits from, you know, that size down move. >> You're right. >> When you net it out, you know, quality of living, emotions, I would never like to see in my life, >> family, friends. That's correct. >> Yeah. You know, nobody wants that. Um, next one here. So, the VIX Oh, no. Sorry. Go back. Uh this one. Yeah, the VIX had uh a substantial move on 44, jumping to 45 from 30 in just one day. The sixth largest single day jump uh in the VIX. The following table shows the top six largest VIX single day upside moves since 2004 and their causes. Uh so, you know, this goes back the last 20 some odd years. 21 now. Uh because we include this year. Um >> that doesn't even get you into 2000s. Yeah. >> To 2000. It's amazing. >> Yes. Which is which is wild too. But you know this is you know again this is just some context to you know give you and we have 08 in there. So like you have 08 that you know kind of situation is baked into this data as well. But you know these are huge moves in the mix and they happen and here are the number of occurrences where it does happen. And if you survive you know that's that's a good that's a feather in your cap. It's way different than the trade from 2010 to 2019. You know, that was 10 years where really nothing. You had no real event. You had the V magdon kind of spike and that whole, you know, thing that kind of blew up, but that wasn't like market down pain. That was V squeezing. That wasn't even a big move in the involve. That was a 10 to 20 move in V. You know, these were big events. And so I think uh this is really good context. >> Great content. Totally agree. >> Uh so a couple takeaways on this one. The the April correction was one of the largest in decades behind only 2008 and 2020. The VIX reaction was extreme showing heightened fear and uncertainty. Diversification and risk management became critical of course and using risk defined hypop option strategies can help manage volatility and reduce tail risk. you know, you can define the risk and that will greatly help in these situations, especially if you are trading futures. I think the takeaway for me from this year and through the last couple years of any futures trade, even if you have the capital to be naked with the margin that you get, the span margining, it probably makes sense to buy one or two or three type tail puts just to hedge the V explosion. Like there were so many people that did the 112s or like other strategies where the vow or even the silver situation that we're in right now where had you bought tail cheap calls you'd be you'd be able to hold this position. You might even be up >> or you trade or you traded a product really really small like SLV as opposed to >> Yeah. >> you know SIL futures. Sure. >> Yes. So that was a good one. >> Yes. So, next one here, trading small cap indices. This was uh February 21st of 2025. Let's get into this one. Uh so over the past 25 years, the IWM has outperformed the SPY 14 times. Uh the QQQ's 11 times and both 10 times. So you you have seen some outperformance in certain years. Here the median annual return for IWM is 12.5% surpassing the spies 11.2%. Uh so you you know you have more volatility in IWM obviously is kind of what you're getting here to both directions >> right >> next slide here. So the Russell 2000 volatility is consistently higher than SPY and Q's IWM volatility is greater than Q's 68% of the time and almost 90% on SPY. And so when you have volat and this goes to the conversation we've had about silver all day today. When you have volatility higher volatility you do tend to get realized volatility that is great is higher. I mean that's just bound to happen. The question becomes whether it's going to be greater than what is implied. When something has high implied volatility it's you should expect bigger moves relative to something that has low implied volatility. >> Very good. Yep. Uh so most of the time their IVs exceed their historical volatilities or or their realized volatilities. Among the 500 stocks in the S SPX, 100 stocks in the NDX and 200 2,000 stocks in the rut, a larger percentage of the small cap stocks show more overstated IVs compared to uh historical volatilities than those in S&P and NDX. This this is basically a story of higher volatility. implied volatility tends to be overstated more than lower implied volatility. This is exactly what it's telling you. It's telling you it it it validates and tells you why we look for things with high volatility is because they tend to be overstated a higher percentage of the time than when volatility is low. >> Yeah, you you said it right. This is all about volatility. Period. >> Yeah. [sighs] >> Next slide here. So despite the higher volatility and weaker underlying performance in recent years, selling options in IWM remains robust offering returns comparable to the Q's and slightly better than SPY. Uh you know this is just another kind of example of volatility volatility higher volatility is going to be higher potential risk higher potential reward. I mean that's that goes hand in hand. >> Yeah, not too much to add. Totally agree. >> So a couple takeaways here. Small cap indices and the components are more volatile than large caps. Their implied volatility is even higher creating an advantage for option sellers. Selling options in IWM provides performance similar to the Q's and slightly better than SPY on a return on capital basis. So you know diversify, trade them all. I think they all warrant positions. Uh if you have the capital, you should be in all of them. >> And diversify by strategy too, right? Probably one of the most important things we talk about all the time since we're doing recap is to diversify by strategy, not only the products that might be uncorrelated as best you could find. You certainly can get everything uncorrelated by using the by using different strategies, which is really the key to trading. Even the S&Ps down 33 and change, NASDAQ down 185, volatility up 14 cents, just under 17. The big moves really are the metals. It's been the market. It's been what everybody's been talking about is as record highs have been taking record highs in the equity markets have been taking a backseat to the record highs in the silver and gold uh metals markets today. You got a big move lower in silver almost 6.5% a little bit more and gold down 3%. We'll take a quick 90 second break and come back. We got more Tasty Live after this with um the opening bell, the moment you've been waiting for. We'll be back in 90 seconds of Tasty Live.