The S&P 500 has blown up higher and is now closer to 2100 than 2000. ?Yet the VIX continues to be firm holding above 13.5, even in a somewhat low realized vol environment.
?It is pretty clear in the chart below:
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LivevolX (r) www.livevol.com
The question is why? ?There are two arguments:
1. ?As we rally longs are hedging. ?This is the bull case. ?Basically, those with long positions like being long and are buying hedges with the market at all time highs and the VIX at, relative to longer term trends is somewhat low.
2. ?Traders are scared: ?This is the bear case. ?The idea is that the market is coiling higher until it snaps lower on some sort of geopolitical event, and/or a wicked move in interest rates (which we explained wont happen). ?That said, ?the market at all time highs and VIX a full 2 points above is recent lows even with realized vol in the toilet is reason to worry.
The Trade:
Regardless of the argument it seems to make a lot of sense to be laying down additional hedges right now.
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