If volatility begets volatility, this is not looking good for short term betting in either direction (as volatility is only predictive in magnitude not direction). Many short term traders on both sides are going to get ripped in this chaos.
how do you calculate your sigma, I.e. what lookback period do you use, often times ppl refer to x sigma events, but I wonder over what time period, ie are they looking at daily bars over x years, or weekly, etc. Ie to calculate the std dev is there a standard that people use when referring to x sigmas?
This is over the entire existence of S&P500 to present. As I said, you may think the thing to do is fade the extremes here, but not shown on the chart is that the extremes can go well beyond 5 sigma and they tend to cluster (Oct 87 was -22.8 sigma for example). Unless you are betting pure volatility (directionless), the safe thing to do is cut back on size, since you expect volatility to continue in magnitude, but have no idea which direction. That is why I said either side betting one direction is going to get ripped shortly.