Another day when volatility falls. VIX tried reviving during the mini sell off last week, but that was once again reversed as markets popped higher. If VIX is going up or down, nobody knows, but over past three years the VIX has been making higher plateaus.

After the VIX spikes, volatility reversed lower (among other things volatility is mean reverting), but it has still managed to stay at a slightly more elevated level compared to the prior plateau.

The chart below shows how the VIX went from around 10/11 as a normal level, to build a base at around 13, and post this last VIX spike we seem to have started establishing some sort of “natural VIX” at around 14/15.

US Credit has been another “hedge” asset that has imploded recently. Investors seem to be reluctant to holding any kind of protection. Of course, all global risks can finally be resolved, but there is always the next narrative. Given the still so many uncertain possible events to unfold, the moves lower in VIX and Credit are once again starting to look a bit too “optimistic”. It was only a few days ago VIX traded above 18!

Investors seem to have become very short sighted. Late last week the put call ratio spiked as investors suddenly “needed” to hedge the portfolio as futures were pointing lower. It took one day higher for the same guys to realize they don’t need puts anymore, and the put call ratio chart took a dive.

Bullish or bearish, but protection, hedges or replacing longs with options is starting to look interesting again. The buy backs are soon to go into “pause”, the quarterly earnings are soon about to commence, and on the global macro basis, we have not resolved anything, yet.

Source, charts by Bloomberg