Markets

Wall Street's 'fear gauge' poised for new record low

Key Points
  • The VIX hit a low of 9.04 Tuesday.
  • That's the lowest since Dec. 27, 1993, and below the record low close set on Dec. 22 that year.
Wall Street's 'fear gauge' poised for new record low
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Wall Street's 'fear gauge' poised for new record low

The stock market's so-called fear index was tracking for a record low close on Tuesday. 

The CBOE Volatility Index (.VIX), widely considered the best gauge of fear in the market, hit 9.04 Tuesday, its lowest since Dec. 27, 1993, when it traded as low as 8.89. 

If the VIX ends the day below 9.31, it will break the closing record low set on Dec. 22, 1993. 

On Monday, the VIX closed below 10 for an eighth-straight day. 

Most market analysts have noted the decline in the VIX doesn't necessarily imply market complacency. Rather, the drop in the index reflects its structure, tracking the bets of options traders on whether the S&P 500 index will rise or fall.

Options give traders the right to buy or sell an asset at a preset price, and the steady rise in the S&P 500 has given traders little reason to bet on a significant, volatile drop in the stock index.

The VIX has fallen to lows not seen in more than two decades amid U.S. stocks' steady climb higher, prompting some concern that when market volatility returns, it will spike significantly.

One investor has bet about 1 million options contracts that the VIX will shoot up to 25 by October, The Wall Street Journal reported Monday. The trade could pay out about $265 million if correct, the newspaper said, citing a volatility strategist.

The VIX last topped 20 on Nov. 9, the day after the U.S. presidential election.

The S&P 500 has climbed 15 percent since the election and closed at a record for the 27th time this year on July 19. The stock index set a fresh all-time high Tuesday morning, with energy and financial shares leading the advance.