The Calm Before The Volatility Storm

The Volatility Disconnect

Volatility keeps getting crushed even as bond volatility and macro uncertainty move the other way. VIX is now approaching what increasingly looks like a natural floor, while equities continue behaving as if the recent explosion in bond volatility simply does not matter.

The problem is that volatility regimes tend to mean revert hard once markets shift back from calm micro-driven trading toward macro-driven positioning. With implied correlations still depressed and VIX seasonality turning more supportive, cheap convex hedges are starting to look attractive again.