Why The VIX May Plunge To Record Lows In The Coming Months

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by Tyler Durden
Wednesday, May 29, 2024 - 11:20 PM

Whether it is due to relentless 0DTE and call-overwriting vol sellers, a result of the ongoing liquidity flood from the Reverse repo facility, or simply because it is an election year, the VIX had plunged to a multi-year low as recently as last week, when it slumped below 12 and appeared set to rapidly approach its all time sub-10 lows reached during the infamous zero-vol period during late 2017.

Which has prompted many traders and strategists to ask a simple question: how to make sense of new lows in the VIX at a time of geopolitical upheavals and when interest rates are at 40 year highs?

To be sure, it won't be the first time this question was asked: back in 2017 when VIX seemingly was set to hit 0, SocGen's derivatives strategist Jitesh Kumar published a note titled "How to make sense of the low VIX amidst peak policy uncertainty", and conveniently enough, he did the same earlier this week asking that very same question because, in his words, "low volatility periods, in hindsight, always seem to draw scepticism about their legitimacy" and this time is no different.