In the latest "hot take" on Wednesday's dramatic drop, Goldman's derivatives strategist Rocky Fishman takes on a different approach to the Wednesday rout, looking at it in terms of pre-event realized vol (of 6.4%), and notes that in this context, "Wednesday's 3.3% SPX selloff naively represents an 8-standard deviation event, the 5th-largest tail event in the index's 90-year history, as 6.4% annualized vol implies a 40bp one-standard deviation trading day; instead the drop was more than 330 bps.

As Fishman adds, what makes the drop unique is that most of the top events of this severity, and listed in the chart above, "have often had a clear, dramatic, catalyst (1987 crash, Eisenhower heart attack, Korean war, large M&A event breakup)."

Part of the reason this week's volatility looks like a tail event is that realized volatility had been surprisingly low prior to Wednesday: the five least-volatile quarters for the SPX over the past 20 years were Q1/2/3/4 of 2017, and Q3 of 2018.

For Goldman, the Wednesday spike is reminiscent of the Feb. 27, 2007's China-led selloff, "which marked the end of an extended low-vol period."

That said, Fishman also notes that mathematical tail events have been more common recently, almost as if central bank tinkering with markets has broken them, To wit, "five of the top 20 one-day highest-standard deviation moves (comparing the SPX selloff with ex-ante realized vol) since 1929 have happened in 2016-8."

Fishman then shift focus to the VIX, which while not as violent as the February record spike, "was also the 25th-largest one-day VIX spike on record."

Here, like above, what stands out again is the frequency of recent outlier events, which to Fishman are "a byproduct of risk aversion, liquidity conditions, and fleeting investor confidence." Specifically, after a year of record low vol in 2017, three of the 40 largest one-day VIX moves have happened this year, and 13 of the top 25 VIX move have happened in 2010-8.

One difference in the VIX move is that unlike the S&P, where realized vol did not imply a move of such a magnitude, volatility markets were already defensively positioned prior to Wednesday – leaving no rush to buy vol in the moment. In other words, whereas the VIX-S&P beta has been high, it was not notably elevated during the latest selloff. Also helping is that inverse VIX ETFs already blew up during the February vol spike, eliminating much of the gamma overhang. Here's more from Fishman:

Breaking most of 2018's trend, the VIX was at a nearly 10-point premium to one-month SPX realized vol at Tuesday's close – indicating that markets were positioned defensively, and not lulled by unusually-low close-to-close volatility (intraday volatility had been somewhat elevated relative to close-to-close). Vol-of-vol implied by VIX options was surprisingly high in recent weeks and less surprisingly is even higher now. Perhaps as a result of this, volatility did not react to the sharp spot movements in an aggressive way: the beta of VIX futures to SPX futures, intraday, has been only somewhat above its recent normal level over the past few days, and has been well below the ETP-fueled beta seen in February.