Latest / The Day Trading Podcast with Fexingo: Active Trading, Charts, and Short-Term Market Strategy / The VIX 15 Handoff Signal Day Traders Should Watch
Transcript
- Lucas: So the VIX closed the week at 14.90, down over 6 percent in five days, while the S&P 500 pushed to 7,758. And I think that is the most interesting number on the board right now — not the all-time high in the index, but the fact that the VIX is sitting below 15 after a massive jobs miss. Luna: Right, because a jobs miss usually sends volatility spiking. And here we are seeing the opposite. Lucas: Exactly. And that's the handoff signal. When the VIX drops after bad news, it's telling you the market has already repriced the outcome. The July jobs report came in weak, and the odds of a Fed hike in September tumbled. But instead of fear, we're seeing complacency — or maybe it's relief. The market has moved on to 'the Fed is done hiking' mode, and that's a totally different tape than what we saw in early August. Luna: So the VIX at 14.90 is less about fear and more about certainty? Lucas: That's a great way to put it. The VIX is priced off of options on the S&P 500, so it's measuring the cost of protection. When the Fed's path becomes clearer, the cost of that protection drops because traders don't feel like they need it. And that's exactly what happened this week. The jobs miss basically took a September hike off the table, so the market is breathing a sigh of relief. Luna: But here's my question — we've had episodes about the VIX dropping below 16, below 15.86, below 14.90. What's actually different this time? Lucas: Great question, and I think the difference is the VVIX. The VVIX is the volatility of the VIX, and it's sitting at 90.42, basically flat on the week. So the VIX itself is falling, but the VVIX is not. That tells me the market is calm on the surface, but underneath, the expectation is that this calm won't last. The VVIX is like the engine temperature gauge — if it stays hot while the speedometer drops, you're about to have a problem. Luna: So a falling VIX with a flat VVIX is actually a divergence — and for day traders, that's where the opportunity is. Lucas: Exactly. And it's a signal I look for when I'm scanning for plays. If the VIX is dropping but the VVIX is holding, it means the market is underpricing near-term risk. The options market is getting cheap, and that's when you can buy protection at a discount or position for a volatility spike. I'm not saying it's imminent, but the setup is there. Luna: And how do you actually trade that? Like, what's the concrete play? Lucas: So a few things. First, you can look at options on the VIX itself — buying calls when the VIX is low and the VVIX is high. That's a classic volatility trade. Second, you can look at the S&P 500 options — if the VIX is cheap, you might buy a put spread to protect a long position without paying a premium. And third, you can trade the divergence directly: if the VIX is falling but the VVIX is rising, that's a sign that big money is positioning for a move, so you want to be nimble and not get complacent. Luna: Got it. So it's not about predicting the direction, it's about reading the risk premium. Lucas: Right. And that's the key takeaway — the VIX is not a crystal ball. It's a price. And when that price diverges from the VVIX, it's telling you something about the market's expectations. Today, that expectation is that the Fed is done, but the market is also aware that a lot can change between now and September. The VVIX is saying 'stay sharp.' Luna: And with the S&P 500 up 2 percent on the week, it's easy to get lulled into a sense of security. Lucas: Exactly. And that's the trap. When the VIX drops below 15, you start to see traders pile into risk, thinking the coast is clear. But the VVIX is telling you that the calm is fragile. In fact, I was looking at the numbers this week and noticed that the VIX dropped 6 percent, but the VVIX only dropped 0.4 percent. That's a huge divergence — the VIX is falling ten times more than the VVIX. That is not normal. Luna: So if you're a day trader, what does that mean for your playbook tomorrow? Lucas: It means you should be ready for a snapback. When the VIX gets this low, mean reversion is a real thing. I'm not saying it'll happen Monday, but I'd be watching for any headline that could reignite fear. A surprise CPI print, a hawkish Fed speaker, a geopolitical headline — any of those could send the VIX back up in a hurry. And if you're positioned for that, you're ahead of the curve. Luna: And you're not just talking about buying VIX calls, right? You can also play the other side — if you think the calm lasts, you can sell volatility. Lucas: Sure, but selling volatility is like picking up pennies in front of a steamroller. I like to buy when the risk premium is cheap, not sell it. But yeah, if you have a strong conviction that the Fed is truly done and the economy is going to chug along, you can sell puts on the S&P 500 or buy call spreads. That's a different risk profile, and it works when the VIX is below 15. But I'd rather be a buyer of protection than a seller of it right now. Luna: That makes sense. And actually, this whole conversation reminds me — we talk about this kind of stuff every day, and I know a lot of listeners use these ideas to make decisions, whether they're just starting out or they've been trading for years. Lucas: Yeah, and honestly, if today's episode helped you see the market a little differently, that's exactly why we do this. And if you ever feel like this show is worth a coffee, you can find us at buy me a coffee dot com slash fexingo. It's the smallest ask I can make, and it keeps this whole thing ad-free. Luna: And even if you never buy a coffee, just the fact that you're listening and learning is enough. We really appreciate it. Lucas: Alright, back to the tape. So where were we? We were talking about the VIX handoff signal. I want to dig into one more thing — the relationship between the VIX and the S&P 500's recent move. The index is up 2.1 percent over five days, but the VIX is down 6.1 percent. That's a bigger percentage drop in volatility than the gain in the index. And that's another sign that the market is pricing in a 'Goldilocks' scenario — the Fed is done, but the economy isn't collapsing. Luna: So the handoff is from 'fear of hikes' to 'hope for cuts'. Lucas: Exactly. And for day traders, that means the playbook shifts. Instead of trading the fear, you're trading the narrative. You want to find stocks that benefit from lower rates — things like small caps, REITs, long-duration tech. The Russell 2000 is up 1.8 percent on the week, which is decent, but I think it could run harder if the market truly believes the Fed is on hold. Luna: And what about the VVIX? It's at 90.42, which is still elevated compared to its historical average. So even though the VIX is low, the VVIX is saying that the market expects bigger moves in the VIX itself. Lucas: Right. And that's the nuance. The VIX is the level of fear, but the VVIX is the volatility of that fear. When the VVIX is elevated, it means the market is uncertain about how much fear there should be. That's a classic setup for a volatility spike — the VIX is low, but the market is primed for a jump. It's like a coiled spring. Luna: So what's your takeaway for listeners who are going to trade this week? Lucas: I'd say three things. One, don't get complacent just because the VIX is below 15. Two, watch the VVIX — if it starts to climb while the VIX stays low, that's your early warning signal. And three, have a plan for a volatility spike. Whether that's buying VIX calls, using put spreads, or just cutting your risk, know what you'll do before it happens. Because when the VIX does snap back, it can be violent. Luna: And that's the kind of preparation that separates the pros from the amateurs. Lucas: Exactly. And it's the same mindset we've been talking about all along — day trading is not about being right, it's about being ready. The VIX at 14.90 is a gift, but it's a gift that comes with a warning label. Luna: We'll be back tomorrow with more. Until then, keep your eyes on the tape. Lucas: And keep your stops tight.