Some of the most speculative stock players are jettisoning bets on whether the U.S. market will be driven by fear or greed in the coming months.

As Wall Street frets a rally defying economic gravity, long and short exposures among non-commercial investors on the Cboe Volatility Index have sunk to near multi-year lows, according to the latest CFTC futures data.

Meanwhile, a vanishing number of retail traders are speculating on Wall Street’s fear gauge, with volumes across VIX-focused exchange-traded products slumping. It’s a world away from the frenzied action in the pandemic roller coaster just weeks ago.

“If this reflects a lack of conviction about the direction of volatility in the coming weeks, it is understandable,” Tallbacken’s Michael Purves wrote in a note, referring to VIX futures bets. “Educated guesses on the future moves in volatility are arguably pretty uneducated right now.”

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This is a stock market that has even Wall Street vets scratching their heads, the more so after the S&P 500 rallied 3.2 per cent on Monday, defying the dire warnings of investing heavyweights. Throw in a worldwide pandemic whose ultimate economic toll is a giant question mark, and it’s no wonder volatility traders are sticking to the sidelines.

After spiking to a record closing high of 82.69 in March, Wall Street’s fear gauge has declined by more than half that amount as stocks rallied. The VIX has averaged 32 in May, well above its long-term level of 19.

Amid a busy March betting on the direction of volatility, trading in exchange-traded products has turned downright sleepy. Last week, around US$3.4 billion worth of shares changed hands, down from a peak of US$54.7 billion in a single week in March, according to data compiled by Bloomberg Intelligence. To put that in a wider perspective, trading in January never fell below US$4.9 billion shares a week.

Maybe it’s because traders aren’t expecting much movement over the medium-term, at least judging by the VIX’s term structure. UBS Group AG’s Stuart Kaiser notes that volatility expectations extending nine months into the future are “basically flat.”

The strategist predicts that the risk of a prolonged hit to economic growth will continue to keep medium-term expectations for price swings pinned near where they are now.

“We expect the belly to remain sticky near 30 and the curve to steepen as realized volatility pulls the front lower,” Kaiser wrote in a note.