With April expiration now behind us, the CBOE Market Volatility Index (VIX - 15.32) enters the week trading in the 15 area again, which has been a floor since December. Evidently, those seeking protection against a downturn view portfolio insurance as "cheap" when the VIX ventures down into its present area. And with many protective puts expiring this past week, it wouldn't be a major surprise to see index put buyers active in the days ahead. Such activity can be a headwind for equities, as sellers of portfolio insurance hedge by shorting futures.
But the VIX is not as "low" as it appears on the surface. For example, in late December and early February, the SPX's 20-day historical volatility was registering readings of 11.0 and 11.3 when the VIX was trading in the 15-16 area. Right now, SPX 20-day historical volatility is just over 8.4, which would suggest the VIX is relatively high, even as it trades at chart support and may be considered relatively low by most portfolio managers. The bottom line is: Based on SPX historical volatility, the VIX has room to move lower.
~ Todd Salamone, "Putting a 'Cheap' VIX in Historical Context; Despite near-term hurdles, bulls still have the upper hand," Shaeffer's Monday Morning Outlook, April 16, 2011