Latest / The Bear Market Podcast with Fexingo: Surviving Downturns, Buying the Dip, and Long-Term Resilience / How the VVIX at 95.75 Signals a Volatility Regime Change
Transcript
- Lucas: So the VIX is sitting at 16.50 today, up about four percent over the past five days. That's moderate — elevated but not alarming. But the VVIX, which measures the volatility of the VIX itself, just jumped to 95.75, up nearly eight percent. And I think that divergence matters more than most people realize. Luna: The VVIX is the one a lot of casual investors gloss over. Remind me — it's the implied volatility of VIX options, right? Lucas: Exactly. So the VIX tells you how much volatility the market is pricing into the S&P 500 over the next 30 days. The VVIX tells you how much uncertainty there is about that volatility — it's the volatility of volatility. And when the VVIX spikes while the VIX stays relatively calm, it usually means options traders are pricing in a higher chance of a sudden, sharp move. Luna: So the market is saying, 'We're not super scared right now, but we are super uncertain about how scared we might become.' That's a weird middle ground. Lucas: That's exactly it. And historically, when the VVIX gets above 90 — which it has now, at 95.75 — it's often a precursor to a volatility event. Not a guarantee, but a signal that the options market is bracing for something. Luna: What kind of something? A sudden selloff? A Fed surprise? Because we just had Fed Chair Warsh testify on Capitol Hill today. Lucas: Right, and his testimony was fairly balanced — rates are 'well positioned,' inflation has peaked, according to New York Fed President Williams. But the market might be sensing that the runway is narrowing. The ten-year yield is at 4.62, the two-year at 4.26, so the spread is still positive at 40 basis points. That's not inverted, but it's also not a booming economy spread. The real GDP growth annualized is only 2.1 percent. Luna: So we've got this sort of Goldilocks macro — not too hot, not too cold — but the VVIX is screaming that options traders smell risk. That feels like a disconnect. Lucas: It is a disconnect. And those disconnects are exactly where you want to pay attention. If the VIX were at 25 and the VVIX were at 95, that would be more expected — high VIX, high uncertainty. But here the VIX is at 16.50, near its long-term median, while the VVIX is well above its own median of around 85. That's a red flag. Luna: I remember in early 2020, the VVIX spiked before the VIX did during the COVID selloff. It was like a leading indicator for the crash. Lucas: That's a great example. In February 2020, the VVIX jumped above 100 while the VIX was still in the teens. Then within two weeks, the VIX exploded above 80. So this pattern has precedent. It's not a timing tool — you don't know if the event happens tomorrow or in three months — but it's a warning that the calm surface may be hiding turbulence underneath. Luna: So what should an investor do with this information? Because if you're a long-term buy and hold person, you might just shrug. Lucas: And that's fine. If you have a ten-year horizon, VVIX spikes are noise. But for anyone with a portfolio that has options exposure, or who uses tail hedges, or who rebalances tactically, this is a signal to check your positioning. Maybe you tighten up your put spreads, maybe you take some profits on short vol strategies, maybe you just acknowledge that the risk-reward for selling options has shifted. Luna: Speaking of shifting — one interesting thing about today's data is that the VVIX rose even as the S&P 500 was basically flat, down 0.1 percent over five days. So it's not reacting to a selloff. It's reacting to something else. Lucas: Right. The VVIX can rise because of demand for out-of-the-money VIX calls — traders buying protection against a volatility spike. When that demand increases, it pushes up the implied volatility of VIX options, which is what the VVIX measures. So what we're seeing is likely institutional hedging activity, not panic. But it's worth noting that this kind of hedging often precedes real market stress. Luna: That's a good point. And I think for our listeners who might be newer to this, the key takeaway is that the VIX isn't the only volatility number to watch. The VVIX gives you a second opinion, and right now that second opinion is saying, 'Hey, keep your eyes open.' Lucas: Absolutely. And if you want to dig deeper, you can look at the term structure of VIX futures, or the skew in VIX options. But the simple check is: if the VVIX is above 90 and the VIX is below 20, pay attention. Don't panic, but don't ignore it either. Luna: Before we go further, I want to say something about this show. Lucas and I spend a lot of time digging into these signals because we genuinely think understanding them helps people make better decisions. And we keep this podcast completely ad-free — no sponsors, no commercials. That's a choice we've made because we want the content to be clean and focused on what matters. Lucas: Yeah, and it's only possible because of listeners who choose to support us directly. If our conversations have helped you think about risk or markets differently, and you'd like to keep this ad-free, you can find us at buy me a coffee dot com slash fexingo. No pressure, just an option for those who find value here. Luna: Exactly. And it's a small way to ensure we keep doing what we're doing. But back to the VVIX — because I think there's another layer here. Lucas: Let's hear it. Luna: The VVIX at 95.75 — that's actually above the level we saw during the regional banking turmoil in early 2023, right? I remember it spiked to around 90 then. Lucas: Good memory. In March 2023, during the Silicon Valley Bank collapse, the VVIX peaked around 92. So current levels are actually a bit higher. And that's notable because the macro backdrop then was much more chaotic — a banking crisis, emergency Fed lending facilities. Today we have a relatively calm banking system, but the VVIX is saying options traders are pricing in comparable uncertainty. Luna: So maybe it's not about banks this time. What could be driving it? Geopolitical risk? An election cycle? Because we're in 2026, midterms are coming up. Lucas: Could be a mix. But one thing that stands out is the yield curve — the 10-year minus 2-year spread has been steepening, now at 40 basis points. That's up from 36 basis points just a few days ago. A steepening curve can signal changing growth expectations, and that uncertainty feeds into volatility. Also, we've got Warren Buffett making headlines today saying 'it's tough to find values when everybody is preferring gambling.' That kind of sentiment from the Oracle of Omaha might weigh on some traders. Luna: So the VVIX at 95.75 is like the market's way of saying, 'We're not sure what's coming, but we're paying up for options just in case.' And the question is, should the average investor do the same? Lucas: I think the answer depends on your timeframe and your risk tolerance. If you're a long-term investor with a diversified portfolio, you probably don't need to do anything drastic. But if you have concentrated positions, or if you're using leverage, or if you're approaching a period where you'll need to draw from your portfolio — like retirement — then maybe it's worth considering a small hedge. A put spread on the S&P 500, or even just reducing exposure to high-beta stocks. Luna: And importantly, don't let the VVIX itself dictate your actions. It's a signal, not a trading rule. Use it as a prompt to review your plan, not as a reason to panic. Lucas: Exactly. And one way to use it is to look at the ratio of VIX to VVIX. When that ratio drops, it means VVIX is rising faster than VIX, which is what we're seeing now. Historically, low ratios have preceded volatility spikes. So it's a cross-check. Luna: I want to bring up something from our data: the Russell 2000 is down 1 percent over the past five days, while the S&P is flat. Small caps are underperforming, and that could be another piece of the puzzle. Small caps are more sensitive to economic uncertainty, and if the VVIX is flagging risk, it might be showing up in small-cap weakness first. Lucas: That's a smart connection. The Russell 2000 at 2,963 is down from its recent highs, and it's not pricing in a recession, but it's also not thriving. So the divergence between large caps and small caps aligns with a cautious outlook. The VVIX is basically telling you that the options market sees more downside tail risk than the equity market is currently discounting. Luna: So if you're a trader, maybe you look at VIX call spreads or even VVIX futures. But for most of us, it's about awareness. Lucas: Right. And I think the bottom line is this: the VVIX at 95.75 is a data point worth knowing. It doesn't mean crash tomorrow, but it means the cost of insurance is rising. And when insurance gets more expensive, it's usually for a reason. So check your portfolio, make sure your risk management is aligned with your goals, and don't be lulled into complacency just because the VIX is at 16.50. Luna: Well said. And we'll keep watching this number. If the VVIX continues to climb, it'll be a topic we come back to. Lucas: Absolutely. Thanks for listening, and as always, we'll be back with more.