Whenever you throw out the phrase “Cheap VIX,” you better put it in some context. So here’s the context:

The chart above shows 10-day realized volatility (aka historical volatility or HV) of the SPDR S&P 500 ETF (NYSE: SPY) for the past three months. The HV only includes two weeks of trading data, so it is subject to the noise of such a small sample size. It does give us a great window as to how the market feels right now, and that’s a huge factor in the implied volatility (IV) we pay on an option. So as long as you don’t over-parse every tick, this number works just fine.

As you can see, this number tells us quite a lot now. The HV has dropped to 5. Yes, 5. That’s an almost impossible number to maintain over time. As a quick rule, you can divide any volatility reading by 16 and translate it into a standard deviation on the underlying instrument, expressed in percentage terms. In this case, 5/16 is about .31, meaning that a five volatility means that SPY (and SPX) have ranged about 0.31% per day. Or more accurately, 68% of days will see a range within 0.31%. That’s an ungodly low 0.4 range in SPY, or 4 point range in SPX.

Returning to the VIX , we see that it sits at 16, the lowest levels since April. But that’s high versus the realized volatility of SPY/SPX. VIX incorporates high volatility out-of-the-money (OTM) puts into its calculation, so thus overstates at-the-money (ATM) volatility in SPX/SPY. At these levels, it typically overstates by about 2 to 3 volatility points. So SPY/SPX ATM options trade at about a 14 volatility, which, as cheap as that sounds, is still high versus a realized volatility of 5.

So does that say that even though VIX options sit at eight-month lows in volatility terms, we should net sell them?

Well, not so fast. Again, that 5 HV is not at all sustainable. We are just beginning a two-week trading stretch that traditionally crawls, so it may not bounce big immediately. But bounce it will. And remember also that HV tells us what already happened, whereas options predict what we will see going forward. At 16 VIX they clearly don’t expect a lot (that’s about a 1% range per day remember), but still, that’s a pickup from this current malaise.

Follow Adam Warner on Twitter @agwarner.