The VIX is getting crushed in a 'volatility trap'

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Cashin says: Volatility good for somebody... not sure who

The U.S. stock market may be having a roller-coaster year, but you won't find many screaming investors riding the tracks.

A basic look at the 2015 chart shows a market that has seen a plethora of tops, bottoms and in-betweens in just 3 ½ months of trading, with a 6.3 percent difference between the index's intraday highs and lows. Point swings in the hundreds on the Dow industrials have been commonplace.

Yet investors aren't looking for protection—to the contrary, in fact.

The most commonly cited gauge of investor fear, the , has plunged a stunning 31 percent year to date. The index is used by options traders essentially as an insurance policy during troubled times.

Under normal conditions, a rising market would be met with a falling VIX and vice versa. This time around, an overall steady market has met with a VIX plunge.

"Something is wrong here," Nick Colas, chief market strategist at Convergex, wrote in a note to clients.

Colas spends a lot of time watching the implied volatility of various products, and is finding lately that the traditionally inverse relationship between price and "vol" instruments is breaking down.

"Now, apparently, we have a 'volatility trap': a situation where options players are deeply reluctant to pay too much for volatility protection, despite historically cheap pricing for downside hedging in listed options," he said. (Tweet This)

While the Nasdaq tech index is up 5.9 percent year to date, the S&P 500 has risen a shade less than 2 percent and the Dow industrials collectively have gained just 0.8 percent. After successive years of above-trend gains, a market where the best opportunities are not in U.S. large caps, as represented by the major indexes, but rather mid and small caps as well as nondomestic equities in Europe, Asia and elsewhere, is something new.

VIX-related products in the exchange-traded fund space have suffered well out of proportion with the broader market's moves.