Volatility Feedback Loop in the VIX Index and Its Derivatives

Summary

The episode delves into the dynamics between the VIX spot index, VIX futures, and the implied volatility of VIX options, highlighting a unidirectional causality chain where spot VIX leads futures, which in turn lead option volatility. High‑frequency analysis shows that during turbulent periods—exemplified by the February 2018 spike—spot VIX values exceed futures, reflecting market participants’ rebalancing of leveraged volatility products. The discussion explains how this lead‑lag structure drives price discovery and amplifies volatility spikes, especially when traders adjust exposure to volatility‑linked exchange‑traded products.