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The ‘death of volatility’ forces traders to get creative

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Stocks aren't the only thing that have gone quiet. Anticipated and actual volatility in many heavily traded commodities have also plunged over the course of this year. And this "all quiet on the Western front" market is forcing traders to rethink the way they turn profits.

"It seems that some folks have already packed up the family truckster, applied the SPF 30 and headed to the beach," said Jeff Kilburg of KKM Financial. "This is reinforced by light volumes, and as traders are viewing the ECB carrying the QE torch being handed off by the Fed," after the European Central Bank announced a raft of stimulative measures, "complacency has certainly found some new company."

The CBOE Volatility Index touched the lowest level since 2007 this month, but it's not just volatility that traders are refusing to pay for. The indexes measuring implied volatility of gold and oil have also plunged this year.

And this doesn't just reflect complacency. These plunges in implied volatility come as realized volatility has collapsed. Stocks, gold and crude oil have all done precious little over the past few months—Thursday's macro-related oil spike aside.

Read More VIX: Index of fear, complacency or ignorance?

"Past is prologue, and the last 30 days have been really quiet. Since it's summer, and most traders are trying to take a little time off, there's no reason to think things are going to magically get volatile now," pointed out Scott Nations, a longtime options trader who is currently the chief investment officer of NationsShares.

This has left traders, who generally look to capitalize off of volatility, searching for new strategies.

"Volatility is DEAD. And as a trader we live for volatility, so right here and now, we must get creative," wrote Rich Ilczyszyn, senior commodities broker at Chicago-based iiTrader, to CNBC.com. "What I do is write premium on current positions or spread. For instance, if I am long WTI [crude oil], I will sell calls against the position to bring in income until the vol comes back."

In low volatility environment: Pro
In low volatility environment: Pro

Jim Iuorio of TJM Institutional Services is similarly seeking ways to squeeze out extra yield.

"I am constantly looking for any trade that involves a shorted asset and a shorted put, or a long plus a short call. It becomes somewhat of an obsession," Iuorio said.

Read More The case for (and against) wimpy ETFs

To some, the low volatility makes chart-based trading that much easier.

"Computers are the ones trading—just look at the volumes. They don't have feelings, they can't get complacent, and they don't get emotional. To me, that means very range-bound markets, where support and resistance are better defined, and ranges are easier to spot," said Anthony Grisanti of GRZ Energy.

Read More The risks of VIX-tied investing

The classic approach is more simple: simply take on more risk.

"You've got to take bigger notional bets," said Brian Stutland of Equity Armor Investments. "If you're watching volatility levels, you can say to yourself, 'I have to take on more notional risk, but I'm not taking on more market risk, because the market probably won't move too much.' So you trade tighter and in more size, and you're more aggressive about getting in and out after small moves."

Of course, the decline in volatility is not bad for everyone. Actually, the calm in the markets makes it relatively more attractive to be long-term oriented.

"This is one of those moments of wonderful schadenfreude for the average investor, who's sick of wealthy options traders getting wealthier," Nations said. In the current environment, because selling options for pennies right now makes little sense, and buying options means losing money slowly, "the really smart options traders are breaking even, while most options traders are getting killed."

—By CNBC's Alex Rosenberg.

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