zerohedge.com / By Tyler Durden / January 22, 2013, 21:13
It would appear that the sell-side is in a full-court-press to convince the world that the levitation of nominal equity prices is indeed the start of something new and secular – as opposed to the inevitable consequence of global monetary experimentation. To wit, Goldman has done an excellent job of divining the seven previous regimes within the volatility (or VIX) cycle and believes (with 89% probability) that we have entered a new ‘great moderation’-like eighth regime. They are happy to admit that the ECB ‘promise’ to remove the left-tail, and the Fed and BoJ’s work to open-endedly compress realized volatility is to blame – but the current VIX levels would imply a notably lower (than 2012) realized volatility on average throughout 2013. However, the back-end of the curve remains steep (and unyieldingly less ebullient), the skew is extremely complacent, and as every premium-selling call-writing ‘this-is-easy’ trader knows picking up nickels in front of the steam roller works well – until it doesn’t.
Are we in a new regime for VIX? or is it simply over-confidence in central-banks’ short-term ability to maintain the optics?