2015 Flash Crash (August 24) Made Trading History
The 2015 flash crash refers to the rapid stock market decline on Monday, August 24, 2015. The S&P 500 stock index fell as much as 103.88 points–in minutes–below the Friday, August 21 close. It is also referred to as the “August 24 flash crash” and the “2015 stock market crash.”
On Friday, August 21 the S&P 500 closed at 1970.89. On Monday, August 24 the S&P 500 index opened lower, at 1965.15. Within the first few minutes of trading the index plummeted to a low of 1867.01, a decline of 5% from the open and 5.3% from the August 21 close. August 24 finished the day down 3.66% from the open and 3.9% from the prior close, managing to recoup some of the morning losses.
Selling was already escalating prior to the flash crash, and August 24 acted as a rapid climax to the selling. The S&P 500 peaked at 2134.72 on May 20. The market had some aggressive selling days on June 29, July 8 and July 24, but managed to hold its ground above support near 2040. On August 20 the S&P 500 dropped 1.67% from the prior close, breaking below support, and on August 21 it declined 3.15%.
The S&P 500 index saw significant selling on August 24, 2015, but individual stocks saw much greater volatility. HCA Holdings (HCA) was down 49.1% at one point, and closed the day down only 2.2%. The S&P 500 Low Volatility ETF (SPLV) dropped 45.8% in early trading, and closed down 5.3%–which is more in line with the index it is meant to track. Ford Motor Co. (F) was down 24.7% near the open of trading, but only finished down 4.8%. Loads of stocks and ETFs saw rapid and massive declines–very short-lived–on the morning of August 24.
Causes of the 2015 Flash Crash
Causes for the flash crash include already falling stock prices, which had investors and traders edgy going into the weekend. On August 23/24, Asian and European stocks were trading aggressively lower prior to the US open. The Chinese Shanghai Composite Index dropped 8.5%. These markets open before the US, so the selloff around the globe hit the US last.
The 2015 flash crash is also blamed on hedging, similar to what occurred in the 1987 crash. Traders and hedge funds sought out protection by buying put options (which make money if prices decline), but the people on the other side of the transaction also had to hedge themselves–against selling the puts and the falling stock prices that followed–by selling stock. This created a lot of selling in stocks which built up during the low liquidity hours before the US market open. By the time the US markets opened the sell orders overwhelmed buy orders and very few large players were willing to buy anything because of the uncertain short-term risk.
Add to that, the massive amount of selling caused the New York Stock Exchange (NYSE) to delay opening many of its stocks as it waited for more buyers to step in. But with some stocks trading, and others not, many ETFs and futures contracts couldn’t be fairly valued, which gave an additional reason for traders not to bid or buy stocks. This is why some stocks had such huge moves, as discussed above, because there was little incentive to buy (but there where lots of sellers) when no one else is willing to bid or buy. As more participants entered the market after the open, and the majority of stocks were opened on the NYSE, prices stabilized and moved higher through the morning.
The S&P 500 rallied after August 24, reclaiming the losses of August 20 to 24 by late October.
Further Reading On The 2015 Stock Market Flash Crash
1929 Crash – Learn the history of the Great Crash, which saw stock prices decline almost 90% between 1929 and 1932.
2000 Tech Bubble – Learn the history of the 2000 stock market crash, when technology stocks declined 83%. Also, learn the causes of the crash and the lessons it left us with.
2008 Financial Crisis – Learn the history of the 2008 financial crisis and stock crash, when the S&P 500 declined more than 57%. See what caused the crash, and the lessons we can learn from it.
2010 Flash Crash – The 2010 flash crash was May 6, 2010; at one point during the day the S&P 500 index was down 98.59 points (to a low of 1065.79) from the opening price (1164.38). It was one of the largest intraday swings (difference between daily high and daily low) ever recorded at 101.79 points, or 9.55%.