The Elephant Keeps On Sitting: VIX Slides To 3 Month Lows

Tyler Durden's picture

VIX is now trading with a 15 handle - at its lowest since early April. At current levels of exuberant complacency, the S&P 500 should be trading over 1400 and HY credit spreads back at 500bps. The volatility term structure has collapsed in the last month or two as it appears that there remains an extremely well-capitalized vol-seller at the front-end of the curve - unafraid of risk flares as they pick up those nickels in front of the European steam-roller. We can see two reasons for this compression (from a fundamental perspective): extreme confidence in NEW QE appearing shortly (and suppressing vol as it does) or more likely a vol steepener out beyond the German judge's decision on Spain's bailout constitutionality - or just call-writing retail monkeys following TD Ameritrade's CEO's advice - what could go wrong.

VIX remains a 'little' ahead of credit and equity markets...


Vol term structure collapsing...

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bdc63's picture

Insanity rules the day ... again ...

MillionDollarBonus_'s picture

There's nothing insane about believing in the Bernanke put. Why buy protection at inflated doomer premiums when Bernanke has clearly expressed his intentions to employ a "range of tools" to combat economic weakness? The smart thing to do is to simply buy and hold a mean variance optimized equity portfolio of blue chip stocks, be right and sit tight.

Manthong's picture

Thank God that the PTB have insured that world economies are is growing and reliable, that money flows are managed responsibly and that the markets are sound and stable.

Ample liquidity assures predictability and stability across all sectors regardless of the supply of money created and how it is utilized.

Everyone can be investing confidently knowing that they have nothing to fear but fear itself and that volatility has been engineered out of the system.

potlatch's picture

thnx dude, I needed that laugh )

Bubble's picture

How are they inflated premiums? That completely misses the point of the above piece. The vix is on LOWS. I know your M.O. is to just be a contrarian for your own amusement, but do it properly.

stocktivity's picture

Rally on....It's all Bullshit!!!

SDRII's picture

BLK is the new vampire quid

Village Smithy's picture

This is starting to smell a little "Tulipish".

DavidC's picture



Mugatu's picture

Market pundits keep saying that the market mood is overwhelmingly bearish, but their actions say different.  If there is one trade that is too over-crowded it is the "Fed will always bail us out" trade.  People may be bearish, but no one will sell because they believe the Bernank will come through with more juice.  

Show me a trade where everyone is playing and I will show you a major loss coming.

Mugatu's picture

Market pundits keep saying that the market mood is overwhelmingly bearish, but their actions say different.  If there is one trade that is too over-crowded it is the "Fed will always bail us out" trade.  People may be bearish, but no one will sell because they believe the Bernank will come through with more juice.  

Show me a trade where everyone is playing and I will show you a major loss coming.

JustObserving's picture

Why should there be any volatility in a manipulated market?  The Fed controls everything by using its proxies - the TBTF banks. Volatility should get to zero eventually as Fed control gets absolute.  Gold and silver will be controlled even though Asians are buying.

DeadFred's picture

It works until it doesn't. If you can't get income on bonds that have much higher risk than you get paid for then sell vol. It's decent profit unless you lose. Then you might wish you were too big to fail. This is like farming on the side of a volcano, great soil if can just ignore those rumbles and puffs of ashes.

indianajohns04's picture

So what does this all mean that owning some VXX at this point is insane because you will be Contango'd off of a cliff?

Village Smithy's picture

I think that describes one of my positions pretty well.

bxy's picture

me too.......I get things must have been so much worse when the VXX was 450.  Thank God everything has been solved.

DavidC's picture

Just one question - why would anyone in their right mind provide more QE when jawboning about it is enough to ramp the stock market up?

He will NOT QE until he HAS to, and that won't happen at Dow 12,800 and S&P 1367 or thereabouts.


Village Smithy's picture

I don't think this is about QE anymore. This is about billions of dollars sloshing around due to ZIRP and without any real downdrafts lately the market is getting cocky. They can make in one afternoon all of the interest they will owe for the year. It's fucking insane and it will end badly. But when Dow 13,000? Dow 14,000? 

HarryM's picture

QE reminds me of the wagon being pulled by the donkey where the driver is dangling a carrot at the end of a stick in front of the donkey.

If the donkey ever gets the carrot , he'll stop pulling the cart.

Thus the promise of QE is way more effective than actual QE.

rsnoble's picture

You can't really read the VXX chart.  I like listening to those that think they can. It's reactionary. If you read the real charts and see a drop coming that's your cue.

pleseus's picture

Too many people on one side of the boat.  This ain't going to last this much longer.

RobotTrader's picture

Bond ETF's going wild again today, new highs for the move again in muni-bonds, corporates, and junk.


Never before in history has there been such acute demand and a shortage of paper investments.

Everyone is throwing away gold stocks, oil service names, coal and solar stocks, and piling into any ETF that has a "Fixed Income" designation.


Galactic Superwave's picture

Is that a Black Swan on the horizon or just Benny in a Tux?

disabledvet's picture

"Crouching Tiger Hidden Dragon." Vix is made to be volatile. Low number could mean "prelude to massive policy event."

asteroids's picture

Why would anyone buy this paper when interest rates are so low? What happens if interest rates stabalize or start to rise. This paper will fall like a rock.

EmmittFitzhume's picture

It's a final, long term, institutional driven, short squeeze. Then a massive dump

Unbezahlbar's picture
Chinese companies see profits plunge amid slowdown Chinese companies say profits plunging as impact of abrupt economic slowdown spreads



kaa1016's picture

I've seen this movie before. This can go on longer than most people think. However, last week, there was some big volume in August VIX calls from the 40 to the 60 strikes. Whatever...

firstdivision's picture

But if those in the know are the ones writting the calls, you're fucked if you buy them.

kaa1016's picture

They were selling July hard and buying way out of the money August calls. We might see a repeat of last July/August. Given the macro backdrop and Bernanke needing an excuse for QE3, it looks like the big boys might force him to do more LSAP by dropping the S&P 10 - 15% in the next few weeks. It all makes sense when you look at it the right way...

defn8Dog's picture

It's a fact that ZH needs fear like vampire needs blood. But how about simple seasonality effect on the VIX?  July expiration has the lowest average VIX reading since 1990. Market is in contango. Look at Feb 2013 VIX trading at around 27.  Much scarier than now 'til this Friday.  Sorry to be such a bore.

localpacific's picture

the VIX is obviously crucial to understanding volatility but we need to asses the technical side of things as well .. Short Term Technical Analysis

campag's picture

black swan is here

corn prices skyrocket =

bio fuel prices rocket get ready for $6- gasoline

hopefully goodbye Obama or more SPR release??

firstdivision's picture

hopefully goodbye Obama

hahahaha!  are you saying that the gods are angry and will not allow rain until obama is gone?  yes, this is all obama's fault, nothing to do with erroding of regulations *cough*glass-steagall*cough* that kept the system on firmer ground. 

If you think the transfer of wealth is bad now, wait til Mitt gets in office, and it accelerates.

campag's picture

no , in election year when gasoline spikes - folk will look to blame someone

heads will roll !

LooseLee's picture

I agree with the wealth tranfer under Romney..Austerity will get unbearable. Can't stand BA, either. Kennedy last 'good' prez in my life and I was 2 when he was killed. ALL OTHERS have been the tools of the elite...

potlatch's picture

Our greatest president, Ronald Reagan, would have sniffed this entire problem out right away and nipped it in the bud with some good old fashioned common sense!.

Piranha's picture

vxx up together with spx today

Bastiat009's picture

The gold market is saying no QE coming.

VIX may show that stock buyers are banks and banks are given so much cash that they can buy buy buy ...

_ConanTheLibertarian_'s picture

The Elephant Keeps On Shitting...