This morning one of the more popular measures of risk, called VIX, ticked to its lowest level since June 2007. It’s generally a good thing when VIX is in decline since the behavior tends to accompany the general perception that risk is receding which in turn contributes to higher equity prices. But the absolute level of this measure is what has our attention in here.

With a print of 13.99, VIX is at its lowest point since before the great bear market began. That would be back in the days when politicians and central bankers had to keep their meddling (aka policy) somewhat tethered to economic reality or at least the appearance of such.

Do investors really think that’s the case today?

Interesting to note is that the fall of VIX since New Year’s Day has been accompanied by an explosion of open interest (OI) in VIX futures to the highest level ever. Large specs (speculators) increased long positions (which is a bet on INCREASING volatility/risk) almost 8 fold over this period bringing “net spec long” (large + small spec longs divided by spec open interest) into relative balance at 48%. Over the past 4 weeks small longs have fallen while large almost doubled!

Perhaps expanding OI in VIX futures is simply an artifact of a wider acceptance of this instrument (along with options on it) as a hedge against stock volatility.

But with the overall perception of risk having fallen so much, it seems prudent to keep a wary eye on these market participants.