VIX closed under 12.00 for the first time since April 2007 and closed at the lowest level since February 2007. Many market observers and VIX pundits are saying the level of the index is indicative of some sort of complacency in the market. They are also stating that when it is quiet and no one has any worries regarding the stock market that is exactly the time to worry. With VIX low it may a good time to consider buying some cheap protection in the form of inexpensive SPX put options, however as far as complacency in the market goes, I’m not sure we are there quite yet.
I took a look at the overall VIX market on February 26, 2007 – the last time VIX closed lower than today. First, VIX had closed below 12.00 for 33 trading days in a row. Now there’s some complacency about the market. VIX actually had a 9 handle one day closing at 9.89 on January 24, 2007. Where the true complacency shows up for me is in the shape of the VIX curve. Below I have graphed the VIX curve from today versus the curve on February 26, 2007. The steep line, that’s today, the flat red line, that’s 2007. When the whole curve gets flat like that, that’s where the real complacency about the market has kicked in. Using that historical context we may have a way to go before the market is truly complacent.
Oh yea, one more historical note – one day later, on February 27, 2007 the S&P 500 dropped 3.4% and VIX ran from 11.15 to 18.31 for a gain of almost 65%.