Courtesy of Zero Hedge
The chart below indicates that while the market is exactly where it was in early December 2008, the VIX has droped by almost 60%, and traditional theories that suggest that the corporate risk is merely being offset to sovereigns don’t seem to hold much sway- US CDS is again trading at ludicrously tight levels. So the question arises: just who is selling 1 month forward vol, and just how are they hedging effectively. Granted, one could make the argument that risk was priced at “total chaos” levels in November and December, the market was running a more or less headless chicken in March and breaching lower lows, yet the VIX was unable to even threaten penetratiion of prior resistance levels.
Alternatively said, even with net option open interest increasing, the VIX shows barely any indication of widening. Who is writing these options? Who is buying these options? Why (for both camps), and what do they know (don’t know) that we don’t know (know).
