Peak Complacency Is Back

Tyler Durden's picture

Three gentle 'over-complacent' reminders from the world of implied distributions of returns - i.e. the equity options market. Implied vol is its lowest relative to realized vol in six months - implying market participants are banking on a relatively well behaved market going forward relative to the last few weeks. The short-term volatility term structure is its steepest in seven months - implying that investors are as confident in short-term market calmness (and positive bias) as they have been alsmot all year. The implied skewness of options prices is at almost its lowest in five years - implying downside risk in distributions is near record high levels of complacency. Other than that, fill your boots.


Implied vol - the market's forecast for realized vol going forward (simplified we know) - is its lowest relative to the recent realized vol in six months...


The short-term volatiluty term structure (yellow chart - lower pane) is its steepest today since mid January...indicating a very significant amount of comfort in short-term market resilience...


The green chart below is the calibrated difference between a normal distribution of returns that is implied by options prices - the higher the number the more skewed the distribution of returns implied for the future is to the upside (and the lower the more priced in downside risks are). At the current levels, complacency is near record high levels and has again and again coincided with short-term peaks in equity markets...


Charts: Bloomberg

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malikai's picture

That beautiful moment when it looks like everything is going to be OK. Just before a runaway Peterbuilt carrying naptha rear-ends you at 90.

Ruffcut's picture

I think IV is another ponzi math formula.

Useless as tits on a bull. Most option chains don't even report accurate delta's. and the fucks are hard to chart past option pricing by passing the old basic option codes.

OBOE Option Bullshitters of EVIL.

financial apocalyptic contagion's picture

brace yourselves folks,

Winter is coming

Jlmadyson's picture

Tick tock, tick tock, tick tock

derek_vineyard's picture

take away ZIRP and what do you have?

Satan's picture


Quinvarius's picture

If retail is not long, and banks get free money, there is no one to shake out, and no one that can be shaken out.

Hype Alert's picture

How does this compare to previous election cycles?


I know they were before all the HFT activity and may be totally irrelevant.

Ruffcut's picture

It compares with all ERECTION cycles. Things get HARD and try to find a way up the anus.

MY PfuckingG account was fistfucked, then penson financial troubles with tradeking, My ass is so big I will use a watermelon to fill the hole.

I heard obama still wants my watermelon, too.

slaughterer's picture

Peak complacency is no longer a contrarian indicator.  It is now required by law.  

JustObserving's picture

Relax, Uncle Ben has your back.  Complacency is a key feature of controlled markets since market forces are muted or absent.

buzzsaw99's picture

the bernank put is all the protection longs will ever need.

fireangelmaverick's picture

What nonsense. I will sell when VIX goes negative.

govttrader's picture

So....if this is the perfect time for S&P futures to take a dive (peak complacency afterall)...that means 30yr treasury bonds are about to scream??  I think I said that myself  =)

Doublescythe's picture

Stupidest article ever posted here. This idiotic chart also indicates a high level of complacency in late-2008.

GoldbugVariation's picture

Didn't I read an article the other day saying short interest is also at record lows?

Seems like a perfect short entry point to me.  Risk of further upside in stocks (and oil) seems limited.  The only thing holding risk assets up is the hope of QE3 / LTRO and that must be mostly priced in by now; it's also self-defeating because there won't be QE3 when oil is over $90, and there won't be LTRO when Euro-area stock indices are so high.

Haager's picture

"The only thing holding risk assets up is the hope of QE3 / LTRO and that must be mostly priced in by now; it's also self-defeating because there won't be QE3 when oil is over $90, and there won't be LTRO when Euro-area stock indices are so high"

First part of the sentence: no, there actually are other reasons (for example: politics), and the last part of the sentence: Euro-area stock indices are slightly lower in comparision with Dow/SPY.

slewie the pi-rat's picture

screwed down tight it is

pleseus's picture

tippity top of the market.  good time to sell or go short.

Dr. Engali's picture

I think the S&P will put on another 20 to 25 pts. before it rolls over.

hedgeisforpussies's picture


adr's picture

Uh, what just broke the market. I think the article about bull/bear intraday trading patterns broke a few algos. The market started a little higher, drove higher from 10-11, sold off into noon, and then drove back up into 3:00.

All the major components, including many momo stocks are all vacillating right around 0 for the day. Really frickin screwey.

magpie's picture

My theory is that there is simply no money around, it has to be stuffed into PIIGS bonds qua order from higher power, even ignoring higher US yields.

XitSam's picture

What I want to know is when will we reach peak peakism?  Tired of all the Have We Reached Peak X? and Peak Y is Here articles.