Any fears out there?

Nope & None! Apparently everyone is happy and worry free at the moment. We can sense the euphoric mode of the stock market via the volatility index, VIX.  It has broken several histories this week: The VIX has never ended a session under 9 in its history but is on its way to do so.    It touched an intraday historic low of 8.84 on Wednesday, Jul 26. At its closing level, it has reached its lowest point in the past 24 years since 1993. And VIX has been so low below 10 only 20 times in the past 2 decades but just in the past 2 months, VIX has already been below 10 for over 20 times. Can VIX continue to stay this low? Definitely! But history tells us, a low volatility is always followed by a high volatility. I don’t think this time is different. While no one knows how long this low volatility can last, it can happen any time without warning. The risk of a sudden market crash is substantially increased when there is a widespread complacence without any fears out there. Actually there is a “crazy” trader who has bet heavily to expect VIX will shoot up to 25 in the next 3 months and if he is right, he could pocket in a whopping $262 million gain!

Probably this sounds laughable at the moment to bet for more than a double of VIX, I think there is high likelihood that VIX will go up substantially in the weeks ahead. We saw a sudden 50% jump of VIX within a couple days just a few weeks ago. With the historically low VIX in place, the risk of sudden jumping high is much higher now. Be prepared folks! This is the greatest time to buy puts as they are so cheap with low VIX, which can offer good protection against a sudden panic if it happens. Buying some VXX is also a good idea at this kind of environment although be aware, VXX is not a good long-term holding as its value will decay with time if VIX stays low for a prolonged period. Treat it as an insurance than a profit-oriented trade. Buying some October VXX calls for example can be more cost-effective than simply buying VXX. See my previous post regarding more ideas about buying protection during the extremely complacent market.