VIX Spikes History
Major VIX spikes and what they reveal about options market behavior.
VIX spikes are sudden, sharp increases in the CBOE Volatility Index — the market's primary measure of expected stock market volatility. Major VIX spikes correspond to periods of extreme fear and uncertainty. The VIX has spiked above 40 roughly a dozen times since its inception, and each spike tells a story about market stress, options pricing, and trader behavior. Studying these spikes reveals patterns that help options traders prepare for and capitalize on future volatility events.
Why It Matters
VIX spikes represent the moments when options trading matters most. These are the periods when premiums explode, when hedges pay off (or fail), when fortunes are made and lost. Understanding historical VIX spikes gives you a reference framework for calibrating your risk, sizing your positions, and setting your expectations for how extreme markets can get.
The VIX also mean-reverts, making it one of the most predictable instruments in finance over longer time frames. After every spike, the VIX eventually returns to lower levels. This mean-reversion is the foundation of the volatility risk premium that premium sellers capture — but timing the reversion is the challenge.
How It Works
Major VIX spikes in history:
| Date | Event | VIX Peak | S&P 500 Drawdown |
|---|---|---|---|
| Oct 2008 | Financial Crisis | 80.86 | -57% (total) |
| Mar 2020 | COVID Crash | 82.69 | -34% |
| Aug 2015 | China Devaluation | 53.29 | -12% |
| Feb 2018 | Volmageddon | 50.30 | -10% |
| Aug 2011 | US Debt Downgrade | 48.00 | -19% |
| May 2010 | Flash Crash | 45.79 | -7% (intraday) |
| Oct 1998 | LTCM/Russia Crisis | 49.53 | -19% |
| Feb 2020 | Pre-COVID Spike | 40.11 | -13% (initial) |
| Dec 2018 | Fed Tightening Fears | 36.07 | -20% |
| Mar 2022 | Ukraine/Inflation | 36.45 | -13% |
Patterns in VIX spikes:
- Speed: VIX spikes are fast — typically reaching their peak within 1-4 weeks. The ascent is much faster than the descent.
- Mean reversion: After every spike, the VIX returns below 20 eventually. The median time from a VIX above 40 to back below 20 is approximately 2-4 months.
- Overshooting: The VIX often spikes beyond what subsequent realized volatility justifies, creating opportunities for premium sellers.
- Aftershocks: The first spike is usually followed by secondary spikes over the next 1-3 months as the market retests lows.
- Correlation with drawdowns: Larger VIX spikes generally correspond to deeper and longer market drawdowns, but not always (the Flash Crash produced a VIX of 45 with minimal lasting damage).
Trading VIX spikes:
- During the spike: Avoid selling naked premium. The VIX can always go higher. Use defined-risk strategies if selling premium.
- After the initial spike: Selling premium when VIX is above 40 has historically been profitable, but size conservatively because aftershocks are common.
- Buying the dip: Deploying long stock positions when VIX is above 40 has historically produced strong 12-month returns, but the timing of the bottom is unknowable.
- Calendar spreads: Selling short-dated options (with inflated IV) against longer-dated options can capitalize on the steep term structure during spikes.
Quick Example
On March 16, 2020, the VIX closed at 82.69. You sell a 45-DTE iron condor on SPY for $8.00 credit (the normal premium would be $2.00). The inflated IV creates wide breakeven points — SPY can move 15% in either direction before you lose money.
By May 2020, the VIX has dropped to 30 and SPY has recovered significantly. Your iron condor expires for a $7.50 profit (you closed early at $0.50 remaining). The same trade at normal IV levels would have produced $1.50 in profit.
The lesson: VIX spikes above 40 have historically been the most profitable times to sell premium — not because it is safe (it is not), but because the inflated premiums provide a massive margin of safety that more than compensates for the elevated risk.