Australia's investor 'fear gauge' has fallen to a 2-year low


If you’re not expecting much volatility in Australia’s stock market over the next few weeks, you’re not alone.

The ASX 200 volatility index, or VIX, is currently trading at the lowest level since September 2014.

Source: Thomson Reuters

Yes, the investor “fear gauge”, as it is known, is anything but right now, with options traders seemingly taking the view that another “Santa Rally” into year end will likely be followed by further summer gains in January.

The index uses index option prices as a means of monitoring anticipated levels of near-term volatility in the Australian stock market, according to the ASX.

A high reading, as indicated in the chart above by events that sparked some tumultuous market moves seen in recent years, indicates that options traders expect volatility to increase in the near-term.

A low reading, as seen now, indicates that few expect volatility to increase in the month ahead.

It’s all going to be smooth sailing, says the VIX.

However, just because volatility is expected to be near non-existent in the near-term doesn’t mean that will actually be the case.

Indeed, as this tweet from early January 2016 shows — when China’s stock market plunged leading to trade being halted not once but twice in the space of three days — sources of market angst can come from the most unexpected of places, and at the most unexpected of times.

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