The Fear is Gone!

I've read some recent articles about how the VIX or volatility index on the S&P are now trading much lower than earlier in the year. Even with the market's recent reversal, the markets have traded mostly in an orderly fashion.

Here is one of those articles I read: http://blogs.wsj.com/marketbeat/2009/06/30/the-vix-how-low-will-it-go-and-should-you-buy-volatility/

The question is how to buy volatility? From what I can gather, the only way is to buy or sell options which generally trade cheaper when volatility is low. There must be a way to capture this via some spread by buying and selling a call or some other form of a paired trade. I cannot find any ETF that would make this trade easier.

One thing I have noticed during this period is that short term US treasuries (ETF representation SHY-NYSE) have sold off during this period of stability. There are a myriad reasons for the sell off in US treasuries of course, but the decrease in volatility is one of them. During last years sell off the $USD was king and so were treasuries as overbought as they were. This was a function of volatility and a flight to safety.

This is the one year chart of SHY-NYSE:

I cannot envision smooth sailing in the markets' near future. Already there have been recent calls to the SEC (by the bankers of course) to limit short selling of financial stocks again! What will be the next Black Swan event that will propel the VIX to new highs?

If you're looking for a place to park some cash until the next good investment theme comes along, I would suggest the $USD via SHY. This is short term only as I believe the $USD will be sacrificed long term to fight off any deflationary threats!