VIX... Complacency Alert!!! (VXX, UVXY)

The Volatility Index, or ‘The VIX’ per traders, is signaling not just a lack of volatility.  The lack of volatility has migrated to outright complacency.  When the VIX gets very low, readings of well under 20, it is generally after periods where the stock market has risen handily and also when there has been no real market correction to speak of.  The Volatility Index is now challenging 15.0.

It was just last week when we saw the first drop of more than 1% in the S&P 500 for all of 2012.  Imagine that with all the fears coming out of Europe and with the slowing down out of Brazil and China that the stock market had gone without a single trading session where it closed down 1%.

The good news is simple… Buying protection is cheap and it should be cheaper to buy downside protection via put options.  It does not mean that the market will crash, nor that any disasters are imminent.  Still, usually by the time we get around writing about articles like this some event comes along that wrecks shareholder values.  Maybe it is nothing more than financial market irony.

iPath S&P 500 VIX Short-Term Futures ETN (NYSE: VXX) is down almost another 3% at $21.62, the lowest reading in months and months going back to last summer before the market correction.  The ProShares Trust Ultra VIX Short (NYSE: UVXY) is even down 5.7% at $25.05 on the day.

JON C. OGG