Algos and VIX

Algos are manipulating the VIX according to a whistleblower complaint

CBOE Global Markets falls amid VIX swings -
CBOE Global Markets falls amid VIX swings 

Algorithms  (Algos) are manipulating the VIX according to a whistleblower complaint filed with the SEC and CBoE, according to a Bloomberg report filed late yesterday.

“Algos,” as they’re called, automatically execute trades based on pre-programmed criteria. They can process millions of trades in seconds, predict market movements, take advantage of arbitrage opportunities, speculate on trends and otherwise do whatever programmers design them for.

The letter filed by the lawyer for the unnamed whistleblower claims that derivative VIX equity volatility index can be targeted and moved by posting quotes on options on the underlying S&P 500 without needing to actually trade them or deploy capital.

This has reportedly cost investors $100’s of millions/month in profits and may have contributed to the flat-line on the VIX followed by its surge to 50.3 last week, according to the report.

The CBoE denied the validity of the manipulation charge, citing factual errors and fundamental misunderstanding of the relationship between the VIX index, VIX futures and volatility.

The search for a scapegoat will no doubt continue after the VIX surge last week contributed to the 10-11% correction on underlying stocks, along with the demise of the XIV inverse VIX short-volatility index.

CBOE Global Markets (CBOE) is up 24 cents to $110.92′


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This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility.

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