Wall Street’s ‘Fear Index’ Has Hit a Two-Decade Low

The U.S. stock market’s main gauge of investor anxiety closed at the lowest level in over two decades on Monday as equities show no break from the small daily gyrations that have characterized the market over the last several months.

The CBOE Volatility Index, better known as the VIX and the most widely followed barometer of expected near-term stock market volatility, closed at 9.77, its lowest close since December 1993.

The VIX has dipped so low because stocks have not been moving in large ranges from highs to lows in the last few months, said Pravit Chintawongvanich, derivatives strategist at Macro Risk Advisors in New York.

Over the past year, U.S. stocks have risen even in the face of risky events, including Britain’s vote to exit the European Union and the U.S. election. On Monday, the S&P 500 Index hit a record high of 2,401.36.

The end of April marked the quietest four-month period for U.S. stocks in over two decades.

Market experts peg the relative tranquility in stock market gyrations to a mix of factors including an upbeat macro-economic backdrop and the lack of any big risky events that could potentially rock the volatility boat.

“While some U.S. economic data may have disappointed recently but overall the economy is still growing, unemployment is still extremely low, inflation is very much in check and the U.S. Federal Reserve is raising rates but at a very low pace,” said Mandy Xu, derivatives strategist at Credit Suisse.

“I think all that is positive for risky assets.”

The extended calm has made the buying of volatility a painful affair, as highlighted by a prolific buyer of VIX calls that market watchers have dubbed “50 cents.”

For several months, someone in the options market has been repeatedly buying up VIX call options that cost 50 cents on a bet that the VIX rises above its long-term average of 20, market watchers said.

VIX call options gain in value if volatility spikes.

In all, the buyer, who has spent over $120 million on a bet on higher volatility, now accounts for roughly 9% of overall open call contracts, Chintawongvanich said.

With the stock market remaining stubbornly calm the trader has lost over $90 million in premium, said Chintawongvanich.

The Financial Times last week on Friday identified the trader as London-based investment manager Ruffer LLP, citing unnamed bankers. Ruffer declined to comment to the Financial Times and could not be immediately reached for comment by Reuters.

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