(Bloomberg) — On the surface it was a stock shock for the ages, a once-in-a-generation spike in turbulence that reverberated through global markets. But what if Monday’s extreme volatility event wasn’t quite what it seemed?

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That’s the theory now bouncing around on Wall Street, after a frantic week in which the Cboe Volatility Index staged its biggest intraday jump on record.

The VIX, as it’s known, is sometimes called the fear gauge for its use as a measure of expected stress in US stocks. But some options pros are asking whether it flashed excessively bearish sentiment — less tethered to the market reality — during a jump of as much as 42 points in early trading at the start of this week.

The unprecedented spike took the gauge above 65, a rare level normally signaling utter panic. Yet it transpires that the move could have been caused by several technical factors, including the apparent lack of liquidity, some short covering in misfired volatility bets, or simply how the gauge is calculated.

The argument reflects the fact that the VIX itself isn’t actually traded, it’s a mathematical quantity derived from the price of options on the S&P 500 Index.

For a better reading of market sentiment, derivatives experts often instead look at the futures that are tied to the VIX, contracts that reflect actual money flows. And on Monday, VIX futures showed much smaller increases.

“Actual trades matter more than market quotes,” said Rocky Fishman, founder of derivatives analytical firm Asym 500. “In the case of a big market move outside of normal market hours, investors might find the front-month VIX future to be a better measure of hedging demand than the VIX itself.”

Cboe didn’t respond to emails seeking comment.

Nobody doubts that a big wave of angst blew through markets Monday after a storm of negative macro developments, one that the VIX was sure to react to by shooting higher. Global stocks tumbled amid concern over the health of the US economy, while fears had been building for weeks over the AI-driven melt-up in tech shares. In Japan, turmoil was unleashed as rising interest rates triggered an unwind of the yen-based carry trade.

What’s in question is whether that all justified the largest ever intraday jump in the VIX, a gauge invented three decades ago that has seen the great financial crisis, Volmageddon and more.

It’s a crucial question. The VIX is a key input in many Wall Street models that predict where stocks are heading next, and a sudden spike like Monday’s is usually seen as a sign of investor capitulation, potentially setting the stage for a bounce. The S&P 500 has gained in three sessions since, with investors continuing to pour money into equity-focused exchange-traded funds.

Treating the VIX’s surge to above 65 as a green light to buy the dip is a mistake, according to Peter Tchir, head of macro strategy at Academy Securities.

“That so many people are taking comfort in the ‘fact’ that we had a vol spike and it is over, makes me incredibly nervous,” he wrote in a note.

The VIX’s 42-point climb over less than five hours on Monday took it to 65.73 at 8:37 a.m in New York. But August futures tied to the index rose by only about 5 points over the same timespan. At its widest point, the gap between the index level and that of its front-month contract was 32 points.

That big spread didn’t last long, and by the end of the session it had shrunk to 8 points. To some market watchers, the swift comeback is an indication that the initial VIX jump likely overstated the fear among investors.

One technical factor that may have contributed to this distortion: The VIX is calculated based on a chain of S&P 500 options picked by an algorithm using the mid-point of bid and ask prices for those contracts. If liquidity is thin and turbulence erupts in markets, the bid-ask spreads can widen so much that the VIX ends up being inflated beyond what’s justified.

Consider one such option: a S&P 500 put contract that expires Aug. 30 with a strike price at 4,470. Around the time when the VIX topped 65, the spread between the bid and ask prices reached levels equal to 1% of the equity index’s price, data compiled by Asym show. In the afternoon of the previous trading session, the same measure had been 0.02%.

Generally, pre-market trading is so slow that even small orders can whip things around. Brent Kochuba, founder of analytic service SpotGamma, noticed the VIX’s peak near 65 coincided with an order to purchase calls on the index — one that he suspects was a result of forced buying after a misplaced wager that volatility would decline.

“I theorize that if market participants knew this person had to cover, they widened quotes out to make that covering trader pay up,” he said.

Another volatility strategy may have fueled the VIX’s ascent. Known as the dispersion trade, investors typically bet on smaller swings in an index — while wagering on higher volatility in its member stocks. On Monday though, the VIX’s pre-market surge was accompanied by a rise in the cost of S&P 500 options above that of Apple Inc. and Microsoft Corp. — at odds with a typical pattern where the two components cost more. That suggests dispersion traders contributed to the volatility spike, according to Asym’s Fishman.

“Prior to the market open, dispersion traders may have had their short index positions accrue mark-to-market losses, while the single stock market was closed,” he wrote in a note. “If this led them to cover short index vol positions, and then sell single stock option positions after the market opened, it could have contributed to a spike in index vol pre-open, and then a reduction in all vol levels (particularly single stock) once the market was fully open.”

As with many things in the complex world of volatility trades, it’s not clear cut. Derivatives strategists at Societe Generale SA including Jitesh Kumar and Vincent Cassot reckon the VIX’s spike did at least reflect traders worrying about a worst-case scenario, where US stocks would crash like their Japanese counterparts.

“If the S&P 500 had followed the Nikkei 225 in a 10%+ drop, then a 60+ reading on the VIX would be very much justified,” they wrote in a note. “The market fears were not entirely unfounded.”

But to the likes of Tchir at Academy Securities, that disconnect between the VIX and its futures is key. When the pandemic hit, the two surged in lockstep.

“People are saying there was panic and are buying the market based on that. That scares the heck out of me!” he wrote. “I’m going to stick with my argument that VIX futures and ETF flows tell the real story – some fear, and a decent amount of greed.”

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