As If There Was No Risk Tomorrow: Complacency Hits Record As VIX Craters

Tyler Durden's picture


As VIX drops below 15 for the first time in almost a year, the clarion calls of 'all-clear' should perhaps be tempered with the record-steepness of the volatility term-structure. Simply put, everyone and his mom is now selling short-dated vol but mid-term vol remains stubbornly high - in English, we're safe today but tomorrow could be a disaster - or given medium-term risk outlooks, short-term traders are the most complacent they have ever been.

The writing of covered calls - or overwriting to juice returns - seems to be reaching crescendo levels given this steepness. Writing premium is a no-brainer trade until it reaches down your throat and rips your guts out...

Each time the VIX/VXV term structure has reached down to these levels it has snapped back extremely quickly - this is a record steepness for the short-term vol term structure and should be viewed with massive skepticism.

With all the Vol ETFs, we just wonder how much impact these are having on this short-dated vol compression - especially as longer-term vol fits much more accurately with credit implied protection costs - meaning reality in the short-term remains, well, complacent is a polite word.

Using the vol term structure to 'bet' across event risk time horizons is a popular trade (perhaps on Greek sovereign litigation risk concerns) but we think the collapse in short-term vol is as much as matter of levered longs chasing risk (as S&P has lost its juice) as it is a thoughtful risk positioning for some inevitable risk flare.

Careful with those fingers in front of that steamroller...

Chart: Bloomberg

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Mon, 03/12/2012 - 10:13 | 2247005 Cognitive Dissonance
Cognitive Dissonance's picture

The quiet before the storm.

"The soft summer wind stirs the redwoods, and Wild-Water ripples sweet cadences over its mossy stones. There are butterflies in the sunshine, and from everywhere arises the drowsy hum of bees. It is so quiet and peaceful, and I sit here, and ponder, and am restless. It is the quiet that makes me restless. It seems unreal. All the world is quiet, but it is the quiet before the storm. I strain my ears, and all my senses, for some betrayal of that impending storm. Oh, that it may not be premature! That it may not be premature!"
- Jack London, Iron Heel

Mon, 03/12/2012 - 10:19 | 2247031 DaveyJones
DaveyJones's picture

How apt, a writer who loved to talk about wolves

Mon, 03/12/2012 - 10:41 | 2247123 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

London was one of the original Bohemians who formed the Grove.  They had about ten years before the rich of San Fransisco bought in and took it over.  Jack didn't stick around much longer after the rich boys took over the club.

Mon, 03/12/2012 - 10:50 | 2247150 lineskis
lineskis's picture

Time to go long UVXY? ^^

Mon, 03/12/2012 - 10:55 | 2247161 tooktheredpill
tooktheredpill's picture

good timing - just a few hrs back we have been told to prepare our systems for a significant increase in volume over the coming days (prob by this time next week). No idea on direction but it does not sound like we are onboarding a huge new client...

Mon, 03/12/2012 - 12:09 | 2247411 markmotive
markmotive's picture

Complacency? According to this guy everyone is bearish and the contrarian call is to be bullish.

Mon, 03/12/2012 - 13:51 | 2247783 lineskis
lineskis's picture

@tooktheredpill: What system are we talking about? An exchange system to route quotes and stuff? Or a broker system? Prop trading system?

Mon, 03/12/2012 - 15:52 | 2248199 tooktheredpill
tooktheredpill's picture

at least all equity flows, for all of the above and algo and xing. Other than that its mums the word, but the vibe is at least the volume of last July August. Not sure if bullish news would generate that sort of volume.

Tue, 03/13/2012 - 18:14 | 2252083 tooktheredpill
tooktheredpill's picture

actually nothing to get excited about - just triple witch combined with the original date of the fed 'stress' tests.

Mon, 03/12/2012 - 10:20 | 2247038 mendigo
mendigo's picture

Deer in the headlights.

Mon, 03/12/2012 - 10:23 | 2247050 SheepDog-One
SheepDog-One's picture

Jack London could feel the Winds of Shit.

Mon, 03/12/2012 - 10:33 | 2247081 Popo
Popo's picture

Well, I hate to be the one to say it -- but basically we were all wrong once again.   I include myself here of course, because I've been preaching "imminent collapse" as loud as anyone.

You can always say, "Yeah...but that's because of manipulation" or "We'll be right one day soon" -- but as a trader, that's a cop-out.  


The crash has once again been pushed-back... and it may well get pushed back another 20 times.

Remember:  It was perfectly clear to many critics in 1925 that Communism would never work.  And those critics were 100% correct.  But anyone holding their breath for the collapse died long before it came.    

It pains me to say it but:   Point scored by the other side.



Mon, 03/12/2012 - 10:36 | 2247099 SheepDog-One
SheepDog-One's picture

Great part is, it doesnt matter if you thought the markets would surely head down by now and were 'wrong' as long as youve got plenty of commodities loaded.

Problem is with your 'scorekeeping' theyre will be no winners in this. Why do you think they keep 'pushing it back'...because they know theyre on the losing side and their plans are *fail*.

Mon, 03/12/2012 - 10:39 | 2247113 Popo
Popo's picture

"..because they know theyre on the losing side and their plans are *fail*."


I don't know how you get that.  They sure look like they're on the winning side from where I sit.

And there are winners in every crash.

Mon, 03/12/2012 - 10:54 | 2247159 SheepDog-One
SheepDog-One's picture

Theyre winning what? Some fiat currency which is going worthless? Whatever, they must be easily amused. 

To see more what Im talking about with 'failing' listen to Putins weekend speech.

Mon, 03/12/2012 - 10:39 | 2247115 French Frog
French Frog's picture

Talk of 'market collapse' is so passé, so yesterday, dear!

In full agreement with you here: it's easy to generalise about impending doom when you are only commenting on the matter, but when one is trading day-in/day-out it's a completely different kettle of fish.

The other side is definitely ahead ... for the time being only hopefully

Mon, 03/12/2012 - 10:39 | 2247117 GeneMarchbanks
GeneMarchbanks's picture

Hate to tell you this but if you're referring to Marxist communism, it's very much alive and well.

As well, the CDS 'trigger' saw some debate on Friday. I know hedgless_horseman basically said that the banks would just call it square between themselves and ignore the whole thing. Others echoed similar sentiment.

Mon, 03/12/2012 - 10:40 | 2247122 Cognitive Dissonance
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The can has many miles to be kicked before it crumbles.

But it WILL eventually crumble.

Mon, 03/12/2012 - 10:45 | 2247137 GeneMarchbanks
GeneMarchbanks's picture

The green & red colors on your screen will continue to flash long after your death.

The actual economy will in fact continue to die a slow death.


Mon, 03/12/2012 - 10:50 | 2247151 Sleepless Knight
Sleepless Knight's picture

I think what will happen is everything is "fine" on Friday night, Monday morning will be a totally different story. I just think they can mask it that well now.

Mon, 03/12/2012 - 11:47 | 2247325 whatsinaname
whatsinaname's picture

I dont see how any points are scored if we are paying over 4 bucks for gas.. and get ZIRP at the bank..

doesnt matter whether the crash comes or not.

Mon, 03/12/2012 - 12:03 | 2247380 DCFusor
DCFusor's picture

Damn, actual intellectual honesty on ZH.  Can't believe you haven't been massively junked for it, but for me, you get a green.

Mon, 03/12/2012 - 16:53 | 2248451 Quaderratic Probing
Quaderratic Probing's picture

Capitulation.......check one more indicator

Mon, 03/12/2012 - 10:32 | 2247083 Jason T
Jason T's picture

I"ve never read that before and Jack London is one of my favorites!  Thanks for that quote.  America's golden age.  

Mon, 03/12/2012 - 10:39 | 2247116 Cognitive Dissonance
Cognitive Dissonance's picture

While the quote quickly rose to my tongue when summoned, I had never seen it "In situ". When I "Googled" it to insert a reference for the readers I realized I had never read the book itself and that there were several Jack London that I had missed along the way.

Summer reading.......bitches. :>)

Mon, 03/12/2012 - 10:46 | 2247139 Jake88
Mon, 03/12/2012 - 11:00 | 2247179 Cognitive Dissonance
Cognitive Dissonance's picture

Ya gotta love that Interweb thingy. :)

Mon, 03/12/2012 - 10:36 | 2247101 HarryM
HarryM's picture

The artificially inseminated market will give violent birth to a horror like the scene from the movie "Alien".


That , is poetry

Mon, 03/12/2012 - 11:35 | 2247272 Frank N. Beans
Frank N. Beans's picture

or Damien

or Rosemary's baby

or Mrs. Bernanke's baby


Mon, 03/12/2012 - 12:04 | 2247386 DCFusor
DCFusor's picture

Vogon poetry.

Mon, 03/12/2012 - 10:37 | 2247106 Diet Coke and F...
Diet Coke and Floozies's picture

Durden 2012

Mon, 03/12/2012 - 11:54 | 2247344 847328_3527
847328_3527's picture

The Baltic Index and VIX are broken due to new and different underlying assupmtions.

Mon, 03/12/2012 - 10:11 | 2247008 monopoly
monopoly's picture

Just amazing how little what we call "investors" care about tomorrow. Just keep skipping up that yellow brick road. 

Mon, 03/12/2012 - 12:06 | 2247396 SheepDog-One
SheepDog-One's picture

I know, theyre total fuktards. Never any danger today, or tomorrow...all is well.

Then watch the next market collapse we'll hear all their crying and whining and how they really need to be bailed out or their new Porsche will be repo-ed.

Mon, 03/12/2012 - 16:54 | 2248462 Quaderratic Probing
Quaderratic Probing's picture

GODS work is being done....fear not

Mon, 03/12/2012 - 10:14 | 2247009 DormRoom
DormRoom's picture

Let's see how resilient economies are to an oil shock when Isreall strikes Iran.

Mon, 03/12/2012 - 10:25 | 2247055 dvsteenk
dvsteenk's picture

maybe before striking the Central Bank will load up on oil stocks and derivatives, as they announced buying equities using "excess cash"

Mon, 03/12/2012 - 10:12 | 2247011 SimpleandConfused
SimpleandConfused's picture

Man Tyler, you sure cry WOLF a lot!  How long has it been since you've been warning of danger around the corner?  Three years and 4,000 points on the DOW?

I think you have been clear that the Fed is propping this thing up.  Why would they stop tomorrow?

Mon, 03/12/2012 - 10:21 | 2247039 justanothernerd
justanothernerd's picture

Agreed -- there are people like me who want to take Tyler seriously, but with all of this 'boy cry wolf' talk, it's getting annoying. I mean, I'm guessing Tyler would have predicted that the markets would have crashed by now... 

Mon, 03/12/2012 - 10:26 | 2247058 SheepDog-One
SheepDog-One's picture

Man you 2 guys have great troll names! Well, I guess if you think its all good and any caution is just 'boy who cried wolf' then Im sure youre happy in your all-in margined equity ownership. As you say, what could go wrong?

Mon, 03/12/2012 - 10:33 | 2247092 kito
kito's picture dont get it......tyler lets you know that the pretty and tidy packaged meat in the supermarket is filled with toxic "pink slime" (shout-out to washington blog at the top of the page) can eat it now and maybe not feel its effects immediately, but it will catch up to it or not.....the pink slime still pervades..........

Mon, 03/12/2012 - 10:21 | 2247040 SHEEPFUKKER

Remember last year's daily 500 pt. swings? It can happen any time, just whenever the monkeys decide they want it to happen. 

Mon, 03/12/2012 - 10:23 | 2247047 DaveyJones
DaveyJones's picture

there's a slight difference between not wanting to stop and continuing to have the desired effect

Mon, 03/12/2012 - 10:26 | 2247060 Hedgetard55
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It will continue until it cannot - when the political cost to Bernanke and Obama are greater than the political gains from the market, i.e. when inflation rages and gas prices appear to be crashing Obama's reelection chances.

Mon, 03/12/2012 - 11:09 | 2247201 kito
kito's picture

obamas reelection is a lock.......more than 50 percent of households now receive government a majority..................

Mon, 03/12/2012 - 11:29 | 2247251 cosmictrainwreck
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not to mention the pathetic offers of "an alternative" (except Ron P., of course)

Mon, 03/12/2012 - 12:07 | 2247398 DCFusor
DCFusor's picture

The issue is, many households don't realize it - or deny it even though it's pretty pervasive.  It's actually pretty hard to find anyone who doesn't get something a little extra out of the government in some way.

Mon, 03/12/2012 - 12:40 | 2247541 DosZap
DosZap's picture


The issue is, many households don't realize it - or deny it even though it's pretty pervasive.  It's actually pretty hard to find anyone who doesn't get something a little extra out of the government in some way.

A little too vauge for me explain your statement more fully pls, I get nothing from them, period, that I can see.

Mon, 03/12/2012 - 13:38 | 2247738 FeralSerf
FeralSerf's picture

Just because a household gets government assistance -- I get social security, FWIW -- doesn't mean they necessarily credit Barry with their "good fortune". I got it when GWB was in the head puppet chair too, and he wasn't a favorite either.

Mon, 03/12/2012 - 10:28 | 2247066 Moneyswirth
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Proceed with the junking....

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