With the VIX trading at absurd and arguably artificially low levels for years, many knew a day of reckoning would eventually come. Yesterday it came in like a wrecking ball. The wreckage is widespread and continues Tuesday as traders survey the damage.

Yesterday's record move in VIX, which continued in a wild after-hours session and again on Tuesday, is believed to be technical in nature caused by inverse VIX ETPs covering short future positions and long VIX ETPs adding to positions. Goldman Sachs strategists John Marshall estimates VIX ETPs issuers likely bought around $230 million vega in VIX futures, greater than 100% of a normal day’s volume, and around 50% of the open interest of the first two VIX futures.

Illustrating the damage to inverse VIX ETPs, ProShares Short VIX Short-Term Futures (NYSE: SVXY) is trading down an astonishing 84%. Meanwhile, Credit Suisse announced an event acceleration for VelocityShares Daily Inverse VIX ST ETN (NYSE: XIV) and the ETP will no longer trade after February 20, 2018 with investors receiving a cash payment. The NAV on XIV was last listed at $4.22 as of yesterday on Bloomberg, suggesting potential 96% downside to Monday's regular closing price. Shares of XIV remain halted but are expected to resume for trading at some point today.

One potential bright spot highlighted by Barclays' Maneesh Deshpande is that because of the technical nature of the VIX spike, the move does not necessarily indicate a true increase in risk perception.

Further, Deshpande explains that the magnitude of this negative leverage ETP gamma is now much lower and thus not a major source of concern. "The bulk of the gamma comes from inverse VIX ETPs whose AUM declined by ~97% as a consequence of the spike in VIX futures," he comments. "As a result, we estimate that the VIX LETP gamma has dropped from $60M vega for a 10% VIX future move to ~$14M."

However, Deshpande explains the market may not be out of the woods yet. Another source of negative convexity arises from Volatility Target funds who seek to maintain target portfolio volatility by dynamically rebalancing between equities and cash, he said. They estimate that the current AUM in this type of strategy is ~$350B and they would likely need to decrease their leverage given the increase in expected volatility. "Although the precise timing is difficult to ascertain, we estimate that these funds will need to sell ~$225B worth of equities over the next few days," he added.