More than that, these things create arbitrage opportunity. This derivative type index appears to be based on the inverse of option price volatility. Options have 3 components to their price. Time, strike price and volatility. Volatility is a measure of speculation and interest in taking an option position. That’s why two different stocks XYZ put $30 June and ABC put $30 June giving all things equal, strike price, time value, and both stocks at the same price. One may have a volatility premium, meaning it’s volume is much higher than the other therefor has more active trading.
How they link the index to a price I’ve no clue. But it all sounds like to me people are hedging their bets and doing so robustly and with vigor.
Today's action seems a bit like the climax of derivative index action in 2008 where the big banks and financial mastadons were caught in the downdraft--owing trillions on these index bets that they could never pay off.
Here's hoping today's market is just a mild mini-version of the Giant Correction and Uncle Sam will not be called on to cover losses incurred by the Big Boys.