Long VIX - not what I thought
On Friday, April 17, 2026, day 48 of the war, VIX closed at 17.47, the lowest level of the entire war. This has been painful. My VIX bull spreads are bleeding and I'm confused by the situation. The war isn't over. Oil prices are still elevated. But financial markets have moved on.
In You Shall Not Pass I wrote my expectation that VIX would reach 60+ when oil spiked to $150+ over the next 3-4 months. Technically the scenario may still happen and we may see this spike, but I never imagined VIX would drop to pre-war levels in the meantime.
At the time of that post (March 30) I wrote that "previous crises hit 60-80." This was a generalization and I was specifically thinking about Liberation Day (April 2, 2025), which saw intraday VIX peak at 60 on April 7, 2025. My logic was simple: the US-Iran war is a much more serious crisis than tariffs, so we should easily see a repeat of those VIX levels.
We clearly have not.
VIX spikes are rare
My first realization is that high VIX levels are much less common than my recency bias led me to believe. Over the last 25 years, VIX above 40 on a monthly close basis happened only 10 times:
1. Sep 2001 — 9/11 attacks — VIX ~43
Terrorist attacks triggered immediate insurance and aviation solvency fears. The only geopolitical event to breach 40.
2. Jul-Aug 2002 — Dot-com bust + Enron/WorldCom fraud — VIX ~45
Systemic accounting fraud destroyed trust in corporate earnings, triggering a credit crisis.
3. Sep 2008 – Mar 2009 — Global financial crisis — VIX 80-89
Lehman bankruptcy froze interbank lending and threatened full banking system insolvency.
4. May 2010 — European sovereign debt crisis + Flash Crash — VIX ~46
Greece's inability to refinance debt threatened eurozone breakup and European bank solvency.
5. Aug-Oct 2011 — US debt ceiling + S&P downgrade — VIX ~48
First-ever US sovereign downgrade combined with Italy/Spain contagion raised existential questions about the euro.
6. Aug 2015 — China devaluation + commodity collapse — VIX ~41 close / 53 intraday
Unexpected yuan devaluation triggered global deflation and EM credit crisis fears.
7. Feb 2018 — Volmageddon — VIX ~50 intraday / 37 close
Mechanical collapse of inverse VIX products (XIV) created a reflexive feedback loop, not a macro event.
8. Mar 2020 — COVID-19 — VIX ~85
Complete global economic shutdown caused simultaneous zero-revenue across entire sectors and a full credit freeze.
9. Aug 2024 — Yen carry trade unwind — VIX ~65 intraday / 38 close
BOJ rate hike triggered forced unwinding of ~$4tn yen carry trade, fading within three days.
10. Apr 2025 — Liberation Day tariffs — VIX ~52
Sweeping US tariffs triggered immediate recession and earnings collapse fears in a deflationary demand shock.
Not all crises are equal
The more important realization is that VIX spikes are more related to financial stress than geopolitical events.
Over the same period from 2000, we had major geopolitical events that were not associated with spikes in VIX:
1. Mar 2003 — Iraq invasion — VIX ~34
US-led invasion of Iraq, largest military mobilization since Gulf War.
2. Mar 2004 — Madrid train bombings — VIX ~16
191 killed in coordinated attacks three days before Spanish elections.
3. Jul 2005 — London bombings — VIX ~14
Coordinated suicide attacks on London transport killed 52. FTSE fell 200 points and recovered the same day.
4. Jul-Aug 2006 — Israel-Lebanon War — VIX ~18
34-day war between Israel and Hezbollah with widespread regional escalation fears.
5. Aug 2008 — Russia-Georgia War — VIX ~22
Russia invaded Georgia over South Ossetia—the first major European land war in years. (Note: GFC was beginning simultaneously; VIX rose for financial, not geopolitical reasons)
6. Nov 2010 — North Korea shells Yeonpyeong Island — VIX ~19
First artillery attack on South Korean civilian territory since Korean War armistice.
7. Mar 2011 — Libya intervention + Arab Spring — VIX ~25
NATO airstrikes on Libya, simultaneous uprisings across Tunisia, Egypt, Syria, Bahrain.
8. Mar 2014 — Crimea annexation — VIX ~18
Russia annexed Crimea. VIX barely moved.
9. Jun 2014 — ISIS declares caliphate — VIX ~11
ISIS captured Mosul and declared a caliphate across Syria and Iraq. VIX at historic lows.
10. Nov 2015 — Paris terrorist attacks — VIX ~20
130 killed in coordinated attacks.
11. 2017-18 — North Korea ICBM tests — VIX ~10-16
Kim Jong-un tested ICBMs capable of reaching US mainland. VIX spent much of 2017 at all-time lows.
12. Jan 2020 — Soleimani assassination — VIX ~15
US drone strike killed Iran's top general. Oil spiked briefly, VIX barely registered.
13. Feb 2022 — Russia full-scale Ukraine invasion — VIX ~38
Largest European land war since WWII. Peaked just below 40 despite the scale of the event.
14. Oct 2023 — Hamas attack + Gaza war — VIX ~22
1,200 killed in Hamas attack on Israel, subsequent Gaza invasion. VIX elevated only modestly.
15. Apr 2024 — Iran-Israel direct exchange — VIX ~19
Iran launched 300 drones and missiles directly at Israel for the first time in history. VIX barely moved.
I found "Measuring Geopolitical Risk" by Dario Caldara and Matteo Iacoviello to be a valuable resource on this discrepancy.
The pattern is clear: VIX measures financial stress, not geopolitical risk. Wars, terrorism, nuclear threats - none of these spike VIX unless they break credit markets or threaten institutional solvency.
Position
I was previously convinced that oil prices spiking to $150 would be sufficient to trigger a VIX spike, but now I'm much more skeptical. Based on these examples, problems originating directly in the financial sector are far more likely to cause such spikes.
Out of my list of possible catalysts, I now consider problems in private credit to be the most likely trigger for a VIX spike, not oil prices alone.
My VIX bull spreads remain open, but I'm watching private credit markets, not oil prices, for the catalyst that would validate this position.