From Condor Options:
Is the Market Getting Too Quiet?
The market has not been this docile in more than eight months. The short-term volatility of the S&P 500 dipped below 10% in mid-January, and the market has kept getting quieter as stocks churn flat-to-higher. The temptation when stocks get this quiet and options become this cheap is to assume that volatility will soon revert higher. But before speculating on rockier markets up ahead, it is worth looking back at how similar markets have fared historically.HT: FT Alphaville
Fig. 1. SPX 10-day Historical Volatility, 2009 – 2012. Source: Condor Options
To get a sense of just how calm equity markets have been recently, compare the sub-10% historical 10-day volatility for SPX to the last few years of market history.
There have been four periods since the March 2009 market bottom during which SPX has traded with such lack of intensity. In the first three cases, market volatility touched 20% within a month or less. In the final case, stocks stayed quiet from April to July 2011 before getting rowdy for the European banking crisis....MORE
See also yesterday's ""The Vix feedback loop, analysed" (VXX; TVIX; XIV; XXV)"