On Jan 27, the Chicago Board Options Exchange Volatility Index (VIX) shot up to 37, its highest level since 40, which it attained at the end of October last year. The volatility in the US markets was triggered by a surge in the price of American video game retailer GameStop.
As a result, hedge funds that bet against the stock had to close their positions. Retail investors on online platform Reddit — and spurred on by Elon Musk, the major shareholder of Tesla — got together to shore up GameStop’s price.
It is uncertain where this ends as market watchers attempt to divine if hedge funds — which held short positions in GameStop — are negatively affected. If hedge funds used options strategies to limit losses in their short-selling, then the downside is likely to be limited. That would mean that markets could resume some form of a rally next month.