Buzzwords to Know as the Markets Keep on Bouncing

Maybe the only thing more puzzling than the recent market swings are the terms being used to describe the more technical side of what’s going on. Here’s a guide to some of the most pertinent.

Over the past few years, wild price swings in stocks were few and far between. That led many traders to bet that a popular measure of price swings, the Cboe Volatility Index (VIX), would stay low or drop even lower. For quite a while, bets on low volatility paid off handsomely. Now their popularity is being blamed, in part, for the recent stock market swings. You can’t directly trade the VIX, but more than two dozen derivative products allow traders to track it, and by one estimate, more than $1.5 trillion is now invested in various short-volatility strategies. On Feb. 5, the VIX soared to 38.8, its highest level since August 2015, well up from an average of about 14 for the last three years. Traders reacted by unwinding their positions in concert, including selling equity shares, which accelerated the VIX’s rise in a negative feedback loop.