A primary suspect has been identified in the stock market's two massive dives last week: the short volatility trade. Recently, stock traders have enjoyed an unusual set of "goldilocks" conditions: Strong and steady returns amid perpetually low interest rates. Short volatility trades are basically a financial bet this would continue unabated. But when some unusual wage data caused panic earlier this month, it set off a self-reinforcing spiral: Every loss drove volatility higher, causing...


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