There really is no mystery here. Again the talking heads on CNBC have dismissed the crowd that exclaims, “Volatility is here to stay!” and replaced them with the crowd that proclaims, “Where has all the fear gone?”.
The truth is that this is just a normal cycle absent any exogenous shocks, like global disasters, congressional budget debacles, European bond vigilantes or equity/housing bubbles bursting. If shocks don’t occur, then this is what you get.
In our last column on the vix, this was discussed at length:
So the question is, where do we stand now? The easy trade is over, because now we slope up into the more volatile days of the options expiration (OPEX) cycle historically, but we are still ten trading days from the most volatile days in the cycle, which is the week BEFORE opex expiration, not opex week. Last April for example (and certainly we do not expect a repeat performance, as that would be short-sighted and stupid) the VXX etn fell for seven straight days to the 8th day following opex. That would be next Wednesday.
We still have some low volatile days ahead historically, but it is almost time to shut down the VXX puts and cash in. Then we can reload on May 20 and do it all over again. With the puts, you have defined risk, asymmetric risk/reward scenarios, and excellent liquidity.
But most important, you have history, contango, and negative roll-yield built in as your personal tailwinds.