Collapse of Options Volatility Says Teflon Market's Here to Stay

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Many theories are making the rounds about why the market's been marching higher in the face of disasters, nuclear crisis and government collapses. Stocks' indomitable advance has stumped many market experts.

And if options activity is any indication, they should prepare to be befuddled for awhile longer.

VIX options are seeing heavy call selling, suggesting the index will stay below 22.50 at least until summer.

"There's been an utter collapse of volatility," said Dennis Davitt, First New York Head of Equity Derivative Trading. "The chart looks like an EKG, with the VIX between 15 and 20 — it's in no man's land," he added. Davitt's looking for options trading to stay in a quiet period for next month or two.

The VIX has come down harder and faster than it went up after Japan's earthquake and tsunami on March 11. That sharp mover lower indicates that investors are more afraid of missing a big rally than they are of a sudden plunge.

"The fear of fear is bigger than the fear of the unknown," Davitt noted.

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    Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

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