Market Insight From WSJ.com

VIX's Dip Touches May '08 Level: Sign of Stability or Complacency?

Market's 'Fear Gauge' Shows Risk Perception Is Ticking Downward

By MATT PHILLIPS

Fear? We have no fear!

Or, at least, it looks like there are pretty low levels of jitters out in the market, as measured by the most closely watched volatility measure, the Chicago Board Options Exchange's VIX index.

In early trading Monday, the VIX—often called the fear index—fell below 17 for the first time since May 2008.

This might have been partly attributable to the expiration later this week of January contracts on Standard & Poor's 500-stock index, which serve as the basis for the VIX. The expiration of contracts means investors have to settle their bets on whether the index would rise or fall. Then, of course, they have to decide whether it is worth it to continue to buy protection on big swings in the index.

The falloff in prices reflects that those who had previously bought protection on the S&P 500 are now taking a wait-and-see approach, indicating they don't expect a major market move one way or the other in the immediate future.

There is little in the way of obvious catalysts on the calendar, says Scott Fullman, chief derivative-investment strategist at WJB Capital Group.

"The risk perception for the next week or so is on the low side," Mr. Fullman said in a quick chat with MarketBeat.

Of course, looking at Monday's VIX move, the obvious question is whether a bit of complacency has set in among investors, which is often interpreted as a bearish sign. Some, however, still question whether the VIX really is "low" at the moment.

"The question becomes, is it low compared with the '90 peak? Or is it still high when compared with the 10 level it traded at during the '05-'06 range? We would side [that] it is still too high," wrote Ryan Detrick, senior technical strategist at Schaeffer's Investment Research.