While the near-panic we saw in April and May was probably overdone, by historical standards there is still simply not enough fear out there given all the risk factors on the table.
The VIX or “volatility index” recently dropped back below 16, which means that traders currently expect the S&P 500 ETF (NYSE:SPY) will only move 1% or more about 1/3 of the time.
Before the 2008 credit crunch, the VIX averaged 19.8, so we are a little below the historical norm here, much less at the elevated 30-point level the VIX cracked in mid-March.
The VIX’s role as an indicator has been tested in the last few years as we look for a “new normal.”
But because many traders still obey the “Rule of 16″ and look toward VIX 16 as a psychological benchmark if nothing else, this move tells me to buy volatility at least back up to 18.50.
You can trade the VIX via exchange-traded products like the iPath S&P 500 VIX Short-Term Futures ETN (NYSE:VXX) and VelocityShares Long VIX Short Term ETN (NYSE:VIIX):
Emerging Money provides insightful and timely information about the increasingly important world of Emerging Market investments. CNBC Emerging Markets Contributor Tim Seymour leads the team of Emerging Money to bring you cutting edge global news and analysis.
About Tim Seymour: Tim is a founder of Emerging Money. He is a founder and Managing Partner at Seygem Asset Management, and The Emerging Markets Contributor to CNBC. Seygem Asset Management focuses on investing throughout the global emerging markets asset class. With a view that emerging and developing economies will continue to outpace the economic growth and advancement of developed economies, Seymour has devoted a career to investing in the dominant markets of tomorrow, today. Seymour’s career has included significant experience in both alternative asset management (hedge funds) and capital markets, having launched two hedge funds, and built the largest Russian broker dealer in the USA. Seymour started his career at UBS, focusing on international credit (cash, swaps, forex) in a specialized hedge fund group (New York). Seymour completed the firm’s training program after graduating with an MBA in international finance from Fordham University. Seymour received his undergraduate degree at Georgetown University.