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.
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.