In yesterday's piece we explained the reason why the Cboe Volatility Index (VIX) closed at a multi-year low last week. The basic Econ 101 reason is that supply exceeded demand. Sanguine markets have led to a paucity of demand for hedging protection, while a more than ample supply comes from relentless inflows into ETFs and other funds that utilize volatility-selling strategies. Complacency seems to be a factor, which we will address, but a basic analogy can explain the elemental relationship.
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