The performance of the stock market
over the past few days necessitated some Conspiracy Theory.
According to those who pontificated on CNBC and others, there was
fear of inflation and as a result rising interest rates, that caused
some losses. Then the VIX, a measure of volatility, went up
indicating impending unsteadiness and future losses to come. This
exacerbated trader panic which resulted in elevated sales. Also,
there was great exposure to inverse VIX products on margin. In other
words, traders placed bets on market stability. Brokers called in
these bets and the traders that made them sold stocks in order to
cover these bets (and bet is a good word for this). This resulted in
the precipitous sell off of the past several days.
The Conspiracy Theory: someone
perceived the over betting on the inverse VIX products. They sold
short on stock, maybe Exxon. Then they waited for a small natural
downturn and bought or sold underlying options of the VIX and caused
it to show increasing volatility. This further panicked traders and commenced the sell off.
The conspirators then collected on their short selling, as well put
themselves in position to benefit as the market recovers.
The Securities and Exchange Commission
should investigate incidents like this in the same way the National
Football League reviews every scoring play.
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