The markets stopped caring about 09 volatility and had been focused on 2010. The thought was that 09 will leave with a whimper because of the (government stimulus driven) benign economic data and Fed's inaction. And that's what the shape of the VIX futures curve was implying as participants bid up longer dated options relative to short dated ones.
Next year is when all the action was supposed to take place. But the reversal of the Risk Trade brought the volatility back into 09. Many got caught short vega with near-term maturities (some were long 2010 vega and short 2009 vega). Forced covering flattened the VIX futures curve in a day. Maybe Q4 markets won't be as boring as some had expected.
SoberLook.com
