In-depth analysis on Credit Writedowns Pro.

All is well with the world

By Sober Look

The VIX index hit a multi-year low today (it went below 14.1 this morning).

With interest rates at historical lows, investors are shorting options to become long "theta". Option decay seems to be the only way to generate income. The bet is that no major fiscal decisions will be made in the US until after the elections, the Fed will announce QE3 soon, the next set of corporate earnings is not out for a while, and Draghi has Europe under control. All the macro risks have been resolved for now and we should not expect more near-term volatility.

Right.

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Sober Look is a no-hype financial markets/macro blog that typically relies on data analysis, primary sources, and original materials. We keep it concise, to the point, with no self-promoting nonsense, and no long-winded opinions. If you are looking for Armageddon predictions or conspiracy theories, you will be thoroughly disappointed. Topics include financial markets, banking, asset management, risk management, derivatives, global economy, policy, and regulation, with the emphasis on finance education. Follow him on his blog or twitter.

2 Comments

  1. Andrew Cunningham says:

    I’m in total agreement with you. Unfortunately the decay in vega over time has really smoked my posistion in trying to be long vega. Is your view of the shape of the vol structure that this is the result of traders selling that vol price to generate income? -or that there is a distinction to be made between volatility and uncertainty and if all market participants are uncertain assets can be more highly correlated and thus result in less observed volatility. Just stuff I’ve bee scratching my chin on, and I alwasy enjoy reading your blog so I thought I would ask your thoughts
    -Andrew