“Spot down / Vol down” is the name of the game in 2022. It is a puzzle for many volatility dealers. Despite the correction in equity markets, the volatility is not performing. VIX is not performing and since May, the volatility is moving in line with the spot : Spot down vol down, spot up vol up !
This “inverse skew” dynamics has certainly something to do with the positioning of the dealers. In particular, structured products play an important role here. The presence of autocall products and the large inventory of VolKO Puts (see a risk analysis here) who make the delears longer vega as the market drops are certainly the sources of that behaviour.
Sep22 volatility by strike (coloured) versus SPX spot (white)