(Corrects last paragraph to read "in the final months of 2008 and early 2009" instead of "the final months of 2007 and early 2008")

* Volatility index dips below 30 for first time in 8 mths

* Large number of VIX May calls likely to expire worthless

(Adds byline, analyst comments, VIX expiration)

By Doris Frankel

CHICAGO, May 19 (Reuters) - A key measure of market volatility dropped to levels not seen since the collapse of Lehman Brothers, suggesting investors are much less worried about sharp swings in equity prices.

The Chicago Board Options Exchange Volatility index .VIX, commonly known as the market's "fear gauge," fell below the key 30 level on Tuesday for the first time in eight months.

The decline in the anxiety that dominated trading through the latter half of 2008 into early 2009 suggested investors no longer see the need to guard as heavily against the potential for unexpected gyrations in shares.

The VIX hit a session low of 28.88, off 4.5 percent, its lowest level since Sept. 19, 2008. It sank to 30.24 on Monday, its lowest close since Sept. 12, 2008.