Skew meltdown: Complacency offers cheap hedges

Who needs protection?

Skew has once again collapsed. Skew is not telling you about the next market direction, nor is it the "real fear" indicator. It simply shows the pricing of downside protection on a relative volatility basis. Portfolio managers write upside calls and buy downside puts in a normal market. We are now seeing the inverse. Complacency or not, but you put on hedges when you can, not when you must...and downside hedges are very cheap at the moment. Chart shows SPX and the SDEX index.