It is difficult to tell what “normal” market levels are anymore, but I can certainly say that the gap between longer term option implied volatility and short-term option implied volatility is quite elevated. When measured as the gap between 2 year ATM implied volatility and 1 month ATM implied volatility, we can generally see that spreads above 5% have often occurred before subsequent corrections in the equity markets. Unfortunately, we can also see that this wide spread can continue on for months at a time before there is a correction:
Regardless of our views on market direction, this spread provides interesting trading opportunities for those willing to play in options. Since short-term options are trading at *cheaper* volatility levels than longer term options, the market is providing ripe opportunities for calendar trades – specifically where longer term options are sold and shorter term options are bought. A delta hedged position could provide for some gamma-scalping if market volatility resumes while being short longer-term, more expensive vega. The risk is that realized volatility remains low and the short term options decay due to a faster theta.