It being the 50th Anniversary of Jaws, presenting the financial market version which is the yawning gap between the $VIX and realized vol. The front future is now fully 3x 1m realized vol on the SPX. Basically 100th %ile kind of stuff over the last decade.
The VIX is essentially at the same level as 1m 97% put vol on the SPX, 16.5. The price of that option is 68bps. Based on the 6 realized vol, we could easily justify a VIX closer to 12.5. That would still leave it at nearly double recent realized.
Using 12.5 vol to price that 97% put yields a premium of 34bps. HALF THE PRICE! The entry price on hedges matters a ton. Clearly a big risk-off would boost the price of the put, but your starting point could be 2x as pricey as it should be and that hurts the economics of the hedge.
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