How Two Tiny Volatility Products Helped Fuel the Sudden Stock Slump
- Exchange-traded products ‘major driver’ of Monday mayhem
- Lack of cross-asset contagion points to their role in stocks
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Two days after a sudden spike in volatility sparked a stock-market crash, market participants are left to ponder the wreckage of the sell-off and the mysterious dynamics that caused it. One theory that’s emerging: the curious case of the tail wagging the dog.
Two exchange-traded products that democratized access to one of Wall Street’s most tried-and-true strategies -- selling volatility -- had just $3.6 billion in assets on Monday. That’s a tiny fraction of the roughly $2 trillion estimated to be linked to short-volatility strategies -- and a speck of dust compared to the $23 trillion in market value of S&P 500 companies.