Even NPR’s Morning Edition is highlighting the VIX. As CC pointed out to us this morning, the national radio station did a segment on the low VIX on their morning program, likely to the confusion of its general interest listeners.
— CC Lagator (@cclagator) June 12, 2014
The lack of volatility has certainly been a theme of the past 2 years. And it’s not just stocks. 3 month implied volatility for a number of different assets is near 1 year lows (and the 1 year range was already at the low end of history to start):
Even today, with the S&P 500 index down 0.7%, oil and gold up more than 1%, and the VIX back above 12, there is only one major asset on that screen with 30 day implied volatility above the 52 week average – copper. And that is just barely higher.
Currency volatility is nonexistent, near all-time lows, equity volatility is near all-time lows, and even commodity volatility is relatively subdued, notwithstanding today’s action.
None of this means that volatility has to go higher anytime soon. But volatility this low across ALL asset classes is actually rare. On Monday, we discussed our trading game plan for this sort of vol environment in a couple posts (here and here). So far, we have not seen the type of vol spike that would have us thinking that this is a change in the low volatility regime. We think it’s nearer (within a few months) than it has been for some time, though.
When things do change there is likely to be some initial overhang as the percentage spike in volatility terms will likely find sellers of premium of those that have been choking on it up until that point. If actual volatility continues in the markets the implied volatility would then have room to go higher once those closing sellers are replaced by those looking for still historically cheap protection.