The market's primary measure of fear has cratered, representing a dramatic turnabout in investors' emotional state.
The CBOE Volatility index plunged 42 percent in the prior trading week, its the biggest one-week drop in the history of the index that goes back to 1990.
"As soon as we figured out that things were OK, then immediately there was a rush to sell implied volatility."
"This is an instant Message to all of Wall Street: it's time to monetize all hedges..."
Selling volatility visualized
2x Volatility ETF short interest
According to a technical tool known as “Bollinger Bands,” the S&P 500 index has been as dead, and for as long, as it has been in 22 years. Basically, the market is like a coiled snake that is ready to strike...soon.
First article above:
"...something interesting happened last week. Even as actual volatility has increased, the amount of volatility implied by options prices has plunged"
Realized volatility (Bollinger Band width):
It's CasinoNomics. It's Not Personal
This "shock absorber" effect continues until all of the puts get monetized, which apparently takes 3 iterations, after which comes the "free fall" effect. But we've only seen that three times, so how would we know?