What is Volatility telling us here?
After the latest rallies, the market is feeling increasingly complacent. As we approach the holiday season, liquidity is drying up and people are looking forward to the “slow” Christmas trading. One should not forget though, the problems won’t go away because Santa is coming. If vol continues to be depressed over the coming weeks, it might be a golden opportunity loading up for early 2012 action. Don’t forget, the Vvol is very high indeed, so the theta bleed is not too bad…
Guest Post by Macro Story.
This chart speaks for itself. Investors are not buying at the money puts as measured by the vix nor out of the money puts as measured by the implied volatility skew.
We have seen this before back in late July. Amazing how complacent investors are right here and failing to at least insure or hedge their portfolio.
Here is one additional chart showing the divergence between these two measures of volatility and the SPX.