Have a good long stare at this for a few minutes...and ask yourself one thing, when is the next explosion in volatility due?
VIX, weekly, 5yr
Summary
A few initial things that we can note.
1. We are without question at the low end of the VIX trading range. We really don't go much lower than current levels.
2. We've not seen a decent VIX explosion in over a year, we're kinda due for one.
3. VIX 50 has not been seen since the March 2009 lows. The most recent two explosions failed to breach the big 50. If 50 is broken at ANY point in the coming months, it will be the ultimate warning of a real risk of system-failure.
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So, when will the VIX next explode higher?
A parallel to August 2008 - if you look at the pattern from May-August 2008, it is arguably very similar to March-August 2012.
I guess any doomer bear could justifiably argue that, but there sure doesn't seem any bearish momentum/energy out there right now. I certainly remember summer 2008, and there was a pretty different mood in the air back then. Even though I believe the US economy will formally slip into a recession no later than Q4 (which of course won't be confirmed until late April 2013), I find it difficult to imagine a VIX exploding beyond the low 40s this Autumn.
Regardless, considering the uncertainty in the global economy - and the low level of the VIX itself, picking up a few blocks of VIX calls sure look like a reasonable trade/insurance policy against market downside.
*VIX December Calls, $40 strike for $100 a contract, seem a very attractive strike level, with plenty of time on the detonator clock.
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As for Friday, we have bullish pennants on the hourly index cycles, so we're more likely to gap open a little higher, 1410/12. Bears really need to see a good reversal day, a swing from 1410, with a close of 1395/90 would make for a really nice turning point.
Goodnight from London