What happened to SPX the last time BoJ Interest Rate Decision surprised the market?

On July 31 2024 the Bank of Japan surprised markets by hiking its policy rate 15 bps to 0.25% instead of the widely expected hold or tiny 10 bps move. SPX reacted sharply the next trading day.

That morning SPX opened with a gap down of 1.8% and sold off another 1.1% intraday, closing down 2.9% on the day. The move was accompanied by a VIX spike from 16.5 to 23.8 in one session. The iron condor that was short the 5,450/5,550 call wing and 5,050/4,950 put wing (50-point wings) would have been fully breached on the downside, resulting in maximum loss.

This event is a textbook example of why ALVH traders keep at least 45-55 points of wing width on both sides when VIX is under 18 ahead of major central-bank events. The BoJ surprise created a 180-point SPX gap-and-crash that exceeded typical 1.5-SD expected move. Post-event, VIX stayed elevated above 20 for the next 10 days, forcing traders to either roll the losing put side early or accept the full wing loss and reposition once volatility normalized.

Always widen wings or reduce size into known high-impact FX or central-bank decisions when VIX sits in the 12-17 zone.