The widely observed CBOE Volatility Index and VIX-related exchange traded products have retreated in recent weeks as U.S. markets rebounded and volatility subsided, but this complacency in the markets may be the calm before another storm.
Year-to-date, the iPath Series B S&P 500 VIX Short-Term Futures ETNs (BATS: VXXB), ProShares VIX Short-Term Futures ETF (NYSEArca: VIXY) and VelocityShares Daily Long VIX Short-Term ETN (NYSEArca: VIIX) declined 27.6% as the benchmark VIX slipped to 15.6 from a reading of as high as 36 back at the end of December.
While the pullback in the VIX reflects diminished market volatility, some investors are still wary of a repeat of what happened a year ago when the Doe Jones Industrial plunged 1,175 points, marking its largest single-day point drop in history, the Wall Street Journal reports.
“Momentum has driven the market,” Mohit Bajaj, director of ETF trading solutions at WallachBeth Capital, told the WSJ. “Whenever something moves in such extreme ways, it’s tough to gauge if the run will continue.”