Checking in on the VIX / VXV Ratio

This morning I participated in a chat on Reuters Global Markets Forum where I fielded several very good questions about VIX and the volatility market in general.  Doris Frankel from Reuters asked me to take a look at the ratio of 30-day to 93-day implied volatility as indicated by the CBOE Volatility Index (VIX) divided by the CBOE 3-Month Volatility Index (VXV).  Typically longer term volatility is at a premium relative to near dated volatility.   The chart below shows the daily closing for the ratio of VIX divided by VXV this year.

VIX - VXV

Note that the ratio is consistently below 1.00 which means VXV is at a premium to VIX.  When the ratio goes too an extreme low point it may be considered an indication that near term volatility has reached a level of excessive complacency.  Historically this would put the ratio under 0.80.  Often this is a precursor to bearish equity market action.  Doris was asking if we have reached that point in this ratio with the S&P 500 making all-time highs.  The quick answer, as shown on the chart, is not yet.  However it seems to be heading in that direction.