The VIX has stayed relatively quiet in the high teens even as markets have lurched from one sharp move to the next. Jim Carroll says that calm is not a sign that risk has disappeared. It is a sign that the way traders hedge has changed.
Carroll, speaking with Dave Nadig at Basis Northwest, said options flows have shifted hard toward short-dated contracts and 0DTE trades. Instead of buying broad 30-day protection, traders can target a Fed announcement or a CPI print and be done by the close. That kind of activity does not show up in the VIX the way it once did.
That matters now because the VIX is still one of the quickest gauges investors use for market fear. When it sits low while stocks swing, traders have to decide whether the signal is real calm or just a market that has learned to express worry somewhere else. Carroll’s answer was blunt: “the VIX itself isn’t the problem.”
He pointed to the structure underneath the tape. Market makers are largely sitting in long-gamma positions, which means they tend to sell into rallies and buy into dips. That kind of positioning can smooth the path of prices and make the market look coiled without letting it break loose. Carroll said the compression is visible in Bollinger Bands, Keltner Channels and average true ranges, a sign that the move itself has narrowed even while headlines have not.
The friction is that this calm is being built on layers that can shift fast. Covered call strategies, buffered products and defined-outcome funds have added another structural weight to volatility markets, while major market makers such as Citadel and Susquehanna keep providing liquidity only so long as it makes economic sense. When that changes, Carroll said, the liquidity can vanish without warning. “The moment it isn’t, they’re gone, with no announcement and no warning.”
For now, the lesson is not that volatility has vanished. It is that the VIX is being shaped by short-dated hedging, dealer positioning and option-selling products at the same time. That can keep the index pinned in the high teens even when the market feels anything but steady, and it leaves traders watching for the moment those layers stop holding it down.
