Protection through the purchase of options became even cheaper today as 30-day forward implied volatility (VIX) hit 11.46 -- just 2% above actual realized volatility for the past month (HV21) of 11.24. HV21 is now also roughly equal to the actual volatility over the past three months (HV63), which as I discussed previously, can be used as a reasonable lower bounds for VIX.
Below is a view of today's HV vs IV chart from the VIX futures data page to illustrate where VIX is in relation to historical volatility (three month view):
Next is a view of VIX vs HV63 from June 2004-Present which shows how HV63 can be used as a rough approximation for the lower bounds of VIX in the immediate future under most circumstances:
And while it is possible to say that VIX is running out of room to fall given current levels of historical volatility, VIX futures are another story entirely. As the VIX futures expiration date approaches (March 20th), March VIX futures and spot VIX are likely to converge to within a couple percent of each other (discussed here). At 9% above VIX there is quite a ways for March VIX futures, and consequently VXX, to fall -- assuming spot VIX remains near its current levels.
Looking at April VIX futures, which will become front month futures used in the calculation of VXX and XIV after March expiration, you can see that they now trade at 14.7, more than 27% higher than spot VIX right now. This will provide a new catalyst for a lower VXX and higher XIV as long as VIX remains flat.