The War No One Can Price | The Weekly Wrap – 3/22/2026
TL;DR
Markets often exhibit 'willful ignorance' toward obvious geopolitical threats like war until they materialize, while current options data shows a historic disconnect between implied volatility (VIX ~22) and realized volatility, indicating heavy hedging that could trigger sharp moves when protective positions expire.
🌍 Geopolitical Blind Spots 3 insights
Markets ignore obvious threats until impact
Jared Dillian observes that markets failed to price in the Ukraine and Iran conflicts despite clear military buildups, exhibiting 'willful ignorance' until invasions actually occurred.
Binary outcomes defy efficient pricing
Because wars are binary events that either happen or don't, markets struggle to assign accurate probabilities, creating opportunities for investors who correctly anticipate outcomes before full realization.
Trade both sides of realization
Markets often overreact once events occur, allowing investors to profit from underpricing beforehand and subsequent overreactions as expectations normalize.
📊 The Volatility Disconnect 3 insights
Historic gap between fear and reality
Brent Kachuba highlights that the VIX-to-realized-volatility spread has reached the 90th percentile (10-12 points), an extreme level previously only seen during the GFC or COVID when VIX was above 40.
Hedging without selling underlying
The unusual disconnect indicates investors are aggressively buying put protection while holding equity positions steady, driving implied volatility up while realized volatility remains artificially low.
Jump risk looms as hedges expire
As near-term options expire without incident, the removal of these hedges could suddenly free the market to move, potentially triggering a rapid VIX spike toward 40 as realized volatility catches up.
📈 Options Intelligence vs. Narratives 2 insights
Flows reveal true positioning
Options flows often expose what investors are actually doing versus media narratives, with implied volatility spikes indicating hedge deployment through puts rather than outright liquidation of underlying assets.
Short-term mechanics differ from long-term value
While options markets operate on 30-day cycles focused on expiration dates, long-term investors can use these volatility spikes as sentiment indicators without altering portfolio strategy based on transient hedging activity.
Bottom Line
Use options market data to identify when obvious geopolitical risks are being hedged but not priced into underlying assets, and prepare for potential volatility jumps when those protective hedges expire without preventing market moves.
More from Excess Returns
View all
46 Firms. 100 Years. Half of All Market Wealth | The Hidden Math of 100 Baggers
Just 46 companies generated half of all stock market wealth over the past century, demonstrating that extreme outliers drive returns and investors should study these rare '100-baggers' for identifiable traits rather than relying solely on statistical base rates that assume mean reversion.
A 3% Drop from VIX 40 | What the Options Market Tells Us About What Comes Next
Options markets are exhibiting unusual dynamics with VIX elevated at 25 despite low realized volatility, indicating investors are heavily hedged against 'known unknowns' like geopolitical risks. This creates a dangerous setup where the unwind of OPEX hedges could trigger sudden volatility expansion and sharp market drawdowns.
Down 50%. Up 200% | Jared Dillian on the Regime Change Investors Aren't Ready For
Jared Dillian argues markets structurally fail to price low-frequency, high-impact events due to 'willful ignorance,' while the post-2020 inflationary regime has broken the 60/40 portfolio by flipping stock-bond correlations positive, requiring investors to abandon outdated playbooks and embrace radical adaptability.
They Call It a Lottery Ticket. The Data Says Otherwise | The Hidden Alpha of Biotech
Biotech investing is not gambling but a systematic 'bag of options' exercise where specialist investors can generate persistent alpha by probability-weighting drug development pipelines, though the sector experiences violent capital cycles driven by interest rates and competition from technology narratives like AI.