It is perhaps no surprise that VIX has dropped to new six year lows today as the volatility of the underlying equity market has now been repressed to its lowest point is 17 years. Not since 1996 has short-term realized volatility been this low. The premium (between implied and realized volatility) continues to compress as options traders scalp the difference but increasingly that trade will feel like those nickels just ain't worth the impending steam-roller's wrath. As we noted last night, implied vol skews are as complacent to any downside risk as they have been since before the crisis was even being considered...
Realized Vol...
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Implied Vol...
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Downside Risk Complacency...
[5]
and it seems stocks are disconnecting for now...
[6]
Charts: Bloomberg