The CBOE S&P 500 Volatility Index, the so-called fear index, fell another 2.83% yesterday, August 28, to 14.43.
Hedge funds are betting the calm will last: they are shorting the VIX at rates not seen in three years. Hedge funds and large speculators were net short futures tied to the VIX by roughly 92,786 contracts in the week through August 19–a level last seen in September 2022, data from the Commodity Futures Trading Commission show.
The 10-year average for the VIX is around 16.
Aggressive bets against the VIX are evidence of either confidence–or complacency. In trying to decide which, it’s important to remember that the VIX is a very short-term read on the market since it only looks at the prices of puts and calls on the S&P 500 over the next 30 days. So to be completely accurate, the depressed level of the VIX only indicates the market’s complacency over the next month or so. That period encompasses the September 17 Federal Reserve meeting–which is now expected to result in a cut to interest rates
Back in February 2025 a complacent VIX reversed course quickly. In February, the S&P 500 peaked and turbulence jumped on mounting worries that President Donald Trump’s global trade wars would rattle financial markets and ignite a recession. The VIX went from 15.84 at the close on January 30 to 20.36 at the open on February 3. And then the index fell quickly back again to a close of 15.50 on February 6.
Traders also shorted the VIX at extreme levels in July 2024, before the unwinding of the yen carry trade upended global markets in August.
