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.
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, Sober Look did a post that may answer your question:
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