Normally, a free market cures such bubbles on its own. In 1980, for instance, the Hunt brothers had tried to corner the silver market, briefly taking the price to $50 an ounce. But then people began to sift through attics for stowed-away silver, and scrap dealers all over the world started melting it down. When all that metal reached the market, the price went back to $5 an ounce, and the Hunts filed for bankruptcy. But equity volatility was a rare bird. No one had stored volatility in his attic, there was no surplus source of supply. “Equity volatility was the ultimate short squeeze,” said a
...more
