VIX lets traders wager on fear itself, no longer on underlying volatility

Evidence

As chaos swirls through all aspects of everyday life, the arch-villain of finance capitalism is no longer Leonardo DiCaprio’s handsome “wolf of Wall Street” but the obscured, algorithm-cracking trader quietly speculating on what others might fear, on how their own fears may be speculated by others—or even speculating on fear itself. Today’s markets have their very own fear gauge: the Chicago Board Options Exchange’s Volatility Index—commonly called the VIX—is a measure of future volatility expectations as indicated by the S&P options market. The more active the index is, the wilder the market swings that are likely to appear in the near future. A wide range of VIX futures and options products (forward contracts on the index itself) mean that lucrative wagers on volatility as an asset no longer “track” actual stock-market volatility. VIX may be called “the fear index,” but speculators are far from fearful of volatility. They knowingly descend into chaos while savvy entrepreneurs who ably navigated uncertainty in the past (by mastering the forces of creative destruction) seem to be fading away. — Aris Komporozos-Athanasiou, Speculative Communities, 69

Categorization

• SEED: The displacement of the swashbuckling wolf-of-Wall-Street villain by the algorithm-cracking ‘speculator on fear’ frames speculation as feeling-arbitrage — an angle for an essay on how modern politics likewise monetizes others’ fear rather than producing anything.
• XREF: The VIX as a fear derivative supports the book’s migration thesis (speculation moving into emotions/politics) and links to the reader’s broader interest in sentiment-as-asset.
• CANDY: A light, tweetable point: the market’s ‘fear index’ is traded by people wholly unafraid of volatility — who profit precisely from others’ fear.