I have a question for you.
Actually it’s two questions in one.
If everyone is so damn sure that the low vol. regime is here to stay (i.e. deeply entrenched) and that absolutely nothing can go wrong, then why is open interest on VIX calls climbing and why is the call/put open-interest ratio near its highest since 2014?
Then again, as Bloomberg notes, “leveraged funds are still net short VIX to the tune of 22% of open interest.”
So is what we’re seeing in options just hedging? Maybe. Here’s Bloomberg again:
How do we reconcile the two conflicting signals from options and CFTC data? One possible explanation is that they reflect two different types of market participants. Real money investors want to buy insurance via options, while hedge funds see serenity now in carry trades. Does it square the two?
Who knows.
All we know for sure is this:
Knuckleheads like me buy VIX calls, and I probably loose 9 out of 10.