Case Study: The 2018 Volmageddon Event, A Volatility Strategy Post Mortem

On 5 February 2018 the VIX more than doubled in a single session and XIV, an exchange-traded note that had returned hundreds of percent by selling volatility, lost over 90 percent of its value after the closing bell. It was not a black swan. It was the predictable result of a strategy with negative convexity, a product that had to buy exactly what was spiking, and a crowd that had mistaken a long calm stretch for low risk. This intermediate case study rebuilds the event the way a risk desk would: the VIX futures term structure that made the trade look like free money, the daily rebalancing maths that turned a bad day into a terminal one, the acceleration clause that ended XIV, and the risk metrics that hid the tail. Then it turns the lens on India, where short straddles and strangles on Nifty and Bank Nifty options are the same trade in local clothing, and on the India VIX shocks of March 2020 and 4 June 2024. You finish with a post-mortem memo and a deployment checklist for any short-volatility strategy.