Are We In A New VIX Regime?

Tyler Durden's picture

It would appear that the sell-side is in a full-court-press to convince the world that the levitation of nominal equity prices is indeed the start of something new and secular - as opposed to the inevitable consequence of global monetary experimentation. To wit, Goldman has done an excellent job of divining the seven previous regimes within the volatility (or VIX) cycle and believes (with 89% probability) that we have entered a new 'great moderation'-like eighth regime. They are happy to admit that the ECB 'promise' to remove the left-tail, and the Fed and BoJ's work to open-endedly compress realized volatility is to blame - but the current VIX levels would imply a notably lower (than 2012) realized volatility on average throughout 2013. However, the back-end of the curve remains steep (and unyieldingly less ebullient), the skew is extremely complacent, and as every premium-selling call-writing 'this-is-easy' trader knows picking up nickels in front of the steam roller works well - until it doesn't.


Are we in a new regime for VIX? or is it simply over-confidence in central-banks' short-term ability to maintain the optics?


and in detail:

But it is still different this time from during the Great Moderation as the longer-dated protection market remains bid...


and the skew is extremely complacent:


It would seem that curve steepeners and skew compression have been paying too well for too long and at some point the crowded trade becomes the pain trade... especially with implied vol now trading inside of realized vol once again...

So, while Goldman suggests we are indeed in a new lower VIX regime, we humbly suggest that VIX regime switching has accelerated in this peculiarly binary outcome world of low-growth or depression scenarios... and with currency wars escalating already, the opportunity for a risk flare seems more probable than possible.


Charts: Bloomberg and Goldman Sachs

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flacon's picture

S&P may go to 1500... just a caution:


Daily S&P500 FREE Ichimoku, Candlestick and Fibonacci analysis for January 22nd 2013

Richard Chesler's picture

In search of the greater fool.

Fuck you Goldman.


FL_Conservative's picture

Please clear the last 7.44 and fucking collapse already.

philipat's picture

VXX 3Q 2011=200

Yesterday= 23

Ouch....but don't bet against the Fed??

flacon's picture

It's normal for derivative products like the VXX ETF to have decay - although I agree the VXX has some severe decay. Never go long the VXX unless VIX > VIN > VIF (backwardation) and even then you have to day trade it - don't hold for more than a day or two. Instead of going long the VXX you could go short the XIV. Another trade that some people have had success with is shorting VXX on a longer term timeframe, like you said there is a lot of money to be made going from 200 all the way down to 23. 



MeelionDollerBogus's picture

I heartily disagree. Using the shares the smart thing to do is to buy what you deem a good % opposite to the on-going bull-peak , - Picking the next market top zone to short

using a scatterplot to determine a good entry point & target exit days to weeks later.

If you want to day trade the smarter move is using SPY puts on the way down for the market, VXX puts on the way UP for the market (provided at the time VXX with current split/reverse-split has a linear move drop to come that’s worthwhile). Again, that’s what the scatterplots are for - over-all decay with periodic gains-slope - picking a target along the current slope for gains at the market-peak zone

clara-to-market's picture

Ben Bernanke is an evil zombie.

And Geithner is his demon lover.

Let's cornhole the bastards.

max2205's picture

Could drop another 99%

prains's picture

what's needed now is a vapo rub

Dr. Engali's picture

I wouldn't be surprised if one day we woke up to a market that looks like the BATS IPO & everybody will be scratching their head wondering wtf happened.

Freddie's picture

I checked out your blog. Band of Brothers aka that CS'er Spielberg is all for Obam and destroying your country.  Stop pimping Hollywood.  They hate you and hate America.

Bawneee Fwank's picture

It is not my blog...Just posting it because I like what it says.

Nid's picture

Shit, I fucking hope so. Being tortured in VIX related trades right now.

Bunga Bunga's picture


Do not worry, economic rules do not apply in central planning. All the goals of the 10-year plan will be reached. There is no possibility of failure in central planning, because printing and propaganda are very powerful. Do not fight central planning, you will lose your money in any case. Better join central planning, be calm, do not think too much, follow the instructions of the media outlets and you will be happy. For those unwilling to agree with central planning, central planning will use new technology like social networks, drones, RFID vaccines to track down hostile elements.

Jake88's picture

fear and greed will rule in the end.

chump666's picture

The market is too positive.

That is a bad thing.

Very bad.

ekm's picture

That is an excellent thing.
It's going to crap.

chump666's picture

I know and doomers should be more positive.  Because we will get our market flush.

And it will be mighty. 

lewy14's picture

Right now, the two most beautiful words in the English language... 

...exogenous shock. 

ekm's picture

Wishing and waiting that the casino collapses is not dooming. It's progress.


Dooming is equal with stock manipulation.

Freddie's picture

When will the RUT take a dump?  It is insane.

ekm's picture

When? Only God knows. Timing belongs to God.

Who? Executive order from Obama, same as in 2008, executive order from Bush.

Why? Crude oil prices.


Threshhold crude oil price pain in 2008 was $140. After 5 years of ongoing depression, what's the current threshhold?

earleflorida's picture

nah... there just loadin up the majic carpet ride with more greater-fools before they pull the rug and reload-- all's well that ends well for the ringmaster

Bunga Bunga's picture

"too positive" - such a rule is so 2000ish and does not apply in central planning. BTFP[lanned]D!

pragmatic hobo's picture

vix on sale ... btfd.

electricgorilla's picture

I feel like this is Rothschild at the exchange when there was the battle of waterloo. You know the story. Rothschild sells bonds to give the impression that the battle of waterloo was lost, then buys them all back before the news reaches the market that the battle was won. The market is giving the impression that everything is fine and we will reach glorious heights. That means liquidate everything and sit in cash or go short. Once that news reaches the market or reality sets in, which it will (i believe in the next 6 monthes) we get a good 15-20% correction on the S&P 500. I'm not believing the hype here. 

NoClueSneaker's picture

Wichsen aka VIXEN means wanking in german. IMHO we're in the genuine turbo VIXen regime :-P

Me no clue, don't shoot me. BTW I miss Michael ....

Itch's picture

All kinds of errors here. The design of the experiment and sample size is meaningless...the 89% remarks are childish.

prains's picture

is that with a +/- of 11% error on your ""survey'''

q99x2's picture

The fewer people that have what everyone else wants the more likely the conclusion.

Grand Supercycle's picture

Wile E Coyote sell off awaits...

As mentioned – central bank intervention prolongs and postpones but can not oppose natural market forces indefinitely.

StandardDeviant's picture

Thanks, Tylers.  This is the sort of article that makes it worthwhile coming to ZH.

Just a question: Anyone know what the Y-axis is on the "Complacency" chart - the one with the green line?  Skew between what?