Market on edge: Surging volatility

Why your portfolio might look worse than it is

If you're holding options positions, the recent surge in volatility may be causing your account to flash red. It’s important to understand what’s happening under the surface:

• Bid-ask spreads widen dramatically, especially in low-liquidity names or multi-leg strategies. That can make losses look worse than they are.
• Volatility skew changes can impact the valuation of positions asymmetrically—particularly spread trades or iron condors.
• Greek behavior shifts, especially vega and gamma, can distort mark-to-market performance even if the underlying price hasn't moved substantially.

The key takeaway? The numbers you're seeing on-screen may not fully reflect the real risk or value of your position.

When it’s time to act—and when it’s not

Understanding when to take action is essential in markets like these.

Consider adjusting or closing if:

• You’re short options that are getting breached (especially naked legs).
• A position is at risk of assignment or margin requirements are increasing.
• You're near expiration and need to manage time decay under high volatility.

On the other hand, consider holding steady if:

• You’re in a long-volatility strategy (e.g., long puts or debit spreads).
• Your trade has ample time left and is structured to withstand wider swings.
• Losses are primarily due to spread widening, not real price movement.

In some cases, waiting for the storm to pass may result in pricing normalizing without needing to act.

Final thoughts

Today’s environment is a reminder that markets are driven as much by psychology as fundamentals. The VIX doesn't tell you what will happen next, but it does offer insight into what the market fears might happen. And when fear is elevated, it’s easy to act on emotion rather than strategy.

Stay calm. Understand the mechanics behind your positions. Make choices based on your objectives—not short-term moves or flashing P&L swings.

That discipline can be your biggest advantage.