The War No One Can Price | The Weekly Wrap – 3/22/2026

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.

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.

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.