On October 16th, 2020, at 10am (UTC+3), the ETH CVX had a sudden spike to 100.6 (from a level of 70.5), which was followed by a similar spike in the BTC CVX two hours later — see detailed graphs below:
The two subsequent spikes are clearly noticeable in the combined CVX graph below.
Less than two hours after the spikes, the CVX returned to its previous levels, as volatility in the market declined.
The trigger to these spikes was the OKEX scandal that became public around that time:
As recently published, CVX index is calculated from exchange-traded 30-days option prices of BTC and ETH. Meaning, once the volatility of these asset classes increases due to the fear in the markets and the uncertainty of investors, the CVX responds and increases accordingly. CVX has correlated to the change in BTC and ETH prices and the sudden price drop in BTC and ETH from $11.5k to $11.2k and from $380 to $363, respectively:
It means that the index worked exactly as expected: the panics summoned these ten minutes before unbelievable contracts to the market, prices affected the index calculation, the index spiked.
The bottom line is that this case clearly demonstrates how buying CVX can help investors to hedge themselves against sudden movements in the market, or a “Black Swan” event.
For example, a trader may have a LONG position on a portfolio of various top currencies and fears adverse market conditions. Such a trader can hedge himself by taking a LONG position on the CVX. If a “Black swan” event would kick the market down, a trader may offset his portfolio losses with CVX gain. In this case, a trader could have made 42% in 10 minutes using CVX.
If you are interested in how it works, and understand how options are traded, the explanation of the spike is in the remarkable behaviour of deeply-out-of-money call options. The CVX, following the classic CBOE VIX index, is calculated from prices (premiums) of exchange-traded options, but only out-of-money ones.
Usually, very deep out-of-money calls are not very popular, because of low probability of winning, but for the case we can see at the market relatively short (20 day) option contracts with strike prices of less than 9000!
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