Not dirt cheap, but...
VIX
is not "overly cheap" despite the latest pullback, but the early August
crash shocked volatilities and this remains partly present in the way
volatility is priced. Given the macro backdrop, expecting much lower VIX
is probably not realistic. 1-2 points downside, while the upside
potential is much bigger.
Source: Refinitiv
Got VIX call spreads?
Nomura's McElligott: "Long VIX Call Spreads particularly attractive with VIX 3m Call Skew at 100%ile".
Source: Nomura
Seasonality
Strong VIX seasonality kicks in soon...
Source: Equity Clock
Downside protection
Skew
started repricing last summer and was properly shaken during the August
panic. Since then, the SDEX index has remained elevated, with
occasional spikes. The reaction in mid December was brutal. The crowd is
long and in need of downside protection.
Source: Refinitiv
Rates volatility revival
MOVE has squeezed higher since mid December lows and has stayed "up here".
Source: Refinitiv
The connection
The VIX has reacted to bigger moves in the US 2/10 yield curve lately. Watch the entire rate space closely.
Source: Refinitiv
Cushion gone
We have seen a huge drop off in long gamma. All things equal, the market will move more freely, both ways.
