We have seen a rather dramatic drop in Non Commercial Net Total VIX futures over past weeks. This has been a profitable trade over past weeks as VIX has retraced the Trade War fear trade. We wrote about volatility and concluded the market was pricing risk way too expensive and that VIX was trading very rich.

In our note from early July, “What Happened to Equity Market Risk?”, we concluded:

Buying volatility here outright is a rather late trade, unless you really fear an imminent market collapse or you need to hedge your book desperately.

Some pundits are writing about the fall in Non Commercial Total VIX futures as news, but it should be seen in a context that there was a big pick up in this chart prior to the recent fall.

The absolute level is at rather non dramatic levels as well, almost at a mean reversion level from where we see the chart oscillate around.

Below is a chart showing the SPX (orange) and the same VIX chart as above (white). There is no correlation of falling equity markets and falling VIX net futures positions. Over the past five years, we have actually seen more rising equity markets with falling VIX net positions than the inverse.

Very few people actually know what volatility is and even less know how to trade the asset. This transfers to the often common misconception where people tend to confuse speed with direction of the market.

Source: charts by Bloomberg