The market’s so-called fear gauge is elevated, and that could bode well for stocks if history is a guide.

The spread between the Cboe Volatility Index, or VIX, and two-week S&P 500 realized volatility has widened to a point that historically has been followed by a volatility decline and stocks on average moving higher, JPMorgan Chase & Co. strategists Marko Kolanovic and Bram Kaplan wrote in a note on February 24. Historically, three months after that spread moved this wide, the VIX fell 11 points and the market rallied an average 12% with a move higher 87% of the time, they said.

“Given the VIX is at a near-record premium to actual equity volatility, we think selling the ‘VIX bubble’ represents a good market opportunity,” the strategists wrote.

The VIX jumped a year ago as the Covid-19 pandemic began to spread and affect the global economy, sending markets into a tailspin. The gauge, which has a lifetime average around 19.5, has largely remained above 20 even as stocks hit record highs on encouraging pandemic news. It has also stayed high relative to measures of swings in other asset classes like credit and rates.

There is one potential caveat for equity volatility investors. Michael Purves, the CEO of Tallbacken Capital Advisors LLC, said there are fewer participants willing to bet on declining swings after the culling of the short-volatility industry via VIX spikes in 2018 and March 2020. That’s probably keeping the gauge from falling to its lows from years like 2016 and 2017, he said, pointing to a dearth of put-option volume as evidence.

“There’s a lack of volatility sellers to take this thing lower,” Purves said in an interview. “If there was a lot of fear, you’d see put volumes being higher.”

Still, there are trades that can take advantage of the current levels in the VIX complex, according to Peter Cecchini, founder of AlphaOmega Advisors LLC. He suggests selling April S&P calls or puts on April VIX futures, noting the steep difference between March and April VIX futures.