Latest / The Day Trading Podcast with Fexingo: Active Trading, Charts, and Short-Term Market Strategy / How Day Traders Read the VIX 15 Level for Low-Variance Entries
Transcript
- Lucas: We're recording on a Sunday morning, July 12, and the VIX opened the week at 15.03. That's down a little over three and a half percent over the last five days. Luna: Fifteen. It's not the panic zone, not the complacency zone either. It's right in that middle ground where day traders have to shift gears. Lucas: Exactly. A VIX of 15 tells you the market isn't expecting a big catalyst in the next thirty days. No earnings panic, no Fed surprise imminent. But it's not so low that you get the slingshot effect from a sudden spike. Luna: What I hear from traders is that this is the hardest regime to make money in. The big directional moves aren't there, and the intraday ranges are tight. Lucas: Right. So today I want to talk about a specific approach for trading into a VIX at 15. It's not about predicting the next crash or the next melt-up. It's about adapting your tactics to a low-variance tape. Luna: Let's start with the obvious: how does a VIX of 15 change your entry and exit decisions compared to, say, a VIX of 25? Lucas: At 25, you're looking for mean reversion. You fade the spike, you buy puts when fear is peaking. At 15, there's no spike to fade. So you shift to range-bound mechanics. You trade the intraday support and resistance levels, you keep your profit targets tight, and you size down because the average move per bar is smaller. Luna: The classic mistake I see is traders who keep using the same stop distance they used when VIX was 20 or 25. They get stopped out on noise. Lucas: That's the single biggest adjustment. When VIX drops below 16, the average true range on the S&P 500 E-mini contracts often shrinks by fifteen to twenty percent. If you're still using a ten-point stop, you're going to get clipped by random two-point oscillations. Luna: So what's the fix? Tighter stops, smaller targets, and probably fewer trades per day. Lucas: I'd say yes to tighter stops, but not necessarily fewer trades. You can actually increase frequency if you're scalping small moves. The key is to identify stocks that still offer enough intraday volatility. Not everything moves in sync with the VIX. Luna: Which names are you watching right now? Because the Russell 2000 is down about one point one percent over the last five days. Small caps are lagging. That tells me liquidity might be thinner there. Lucas: I'd look at high-volume large caps that have their own catalysts. AMD, for instance, has been trading with above-average volume lately. Meta too. These stocks can show intraday ranges of one to two percent even when the VIX is low, because they have enough retail and institutional flow to create micro-moves. Luna: So you want stocks with high dollar volume, not necessarily high beta. Beta can be misleading in a low-vol environment. Lucas: Exactly. A stock with a beta of 1.5 doesn't help you if the market itself is only moving thirty cents. You need stocks that have enough independent order flow to generate their own two-dollar swings. Luna: And how do you find those intraday? Are you scanning for relative volume or using level II? Lucas: I use a combination. First, I sort the Nasdaq by dollar volume in the premarket. Then I look for stocks that are showing above-average volume within the first thirty minutes, and where the bid-ask spread is still tight. Level II data is crucial here because you want to see a thick order book on both sides. A thin book means the stock can gap on small orders, which defeats the purpose of a tight stop. Luna: Give me a concrete setup. Say you find AMD at 10:30 AM. It's up 0.3% on the day. The VWAP is flat. What's your entry? Lucas: I wait for a pullback to the VWAP that holds. If the stock touches VWAP and bounces with a visible increase in bid support, I enter long with a stop three or four cents below that VWAP level. Target is the previous day's high, which might be only forty cents away. So it's a very short-term scalping trade, not a swing. Luna: And if it breaks VWAP with conviction, you reverse? Lucas: You can, but in a low vix tape, I'm cautious about chasing breaks. Fakeouts are more common because there's less directional conviction. I'd rather let it go and wait for the next VWAP test. Patience pays more than aggression when volatility is compressed. Luna: That reminds me of a study I saw—when VIX is between 14 and 16, the percentage of days where the S&P 500 closes within 0.5% of the open is about 40%. Compare that to 25% when VIX is above 20. Lucas: That's a great stat. It reinforces the idea that the intraday range is narrow, and mean-reversion patterns work better than trend-following. You want to be a range trader, not a momentum trader, in this regime. Luna: And that's an honest thing—our kind of trading, the kind we talk about on this show, doesn't come with a big ad budget or a corporate sponsor. A handful of listeners chip in monthly through buy me a coffee dot com slash fexingo, and that's literally what funds making this many episodes. Lucas: Yeah, and it keeps the show independent. No pressure to hype products or push signals. If our conversations have helped you think about a trade or a strategy differently, that link is there. No obligation. Luna: Exactly. So back to the VIX at 15. One thing we haven't touched on is how position sizing changes. Are you cutting your share size? Lucas: Significantly. If I normally risk $500 on a trade when VIX is 20, I cut that to $300 at VIX 15. The reason is that the expected move is smaller, so my profit per share is smaller. I need to keep my risk in proportion to the potential reward. If I risk the same dollar amount but the stop is tighter, I'm effectively over-leveraging that tighter stop. Luna: So you size down to keep the same risk to reward ratio on a per-share basis, even though the stop is tighter. Lucas: Right. Let's say a stock has an average true range of $1.50. At VIX 20, that might be $2.00. If I use a $0.40 stop in both cases, but the expected move is smaller, the probability of hitting my target decreases. So I reduce share count to compensate. Luna: And what about options? A lot of day traders use options for leverage. Does the VIX at 15 affect options strategies differently? Lucas: Absolutely. Implied volatility is lower, so options are cheaper. That can make buying calls or puts more attractive from a premium perspective, but the flip side is that the underlying isn't moving much. So you need a bigger percentage move in the stock just to break even on the theta decay. Luna: So you'd lean toward shorter-dated options? Like zero DTE or one-week? Lucas: Correct. I'd use zero DTE options if I'm scalping a specific intraday level. The theta is high, but the premium is low, so a small move in the underlying can still yield a decent percentage return. But I'd avoid buying weeklies unless I expect a catalyst. In this low vix environment, time decay is your enemy. Luna: What about selling options? Some traders like selling premium when VIX is low because they expect it to revert higher. Lucas: Selling premium at VIX 15 is a classic strategy, but it's not without risk. The VIX can stay low for extended periods. Look at 2017—VIX averaged around 11 for months. If you sold puts consistently, you made money, but one spike like February 2018 could wipe out months of gains. I think it's better to sell premium when VIX is elevated and buy it when it's low, not the other way around. Luna: So you're saying the VIX at 15 is a buy-signal for options, not a sell-signal. Lucas: For day trading, yes. For a swing trader, maybe not. But for our purposes today—active short-term trading—I'd rather be a buyer of cheap options than a seller of cheap options. The risk-reward is better if you're disciplined about your entries. Luna: And how do you know when this low vix regime is about to end? What are you watching? Lucas: I watch the VIX term structure. If the front-month VIX futures start trading at a premium to the spot VIX, that's a sign that the market is pricing in a volatility event. Also, keep an eye on the VVIX—that's the volatility of the VIX. It's at 87.28 today, up slightly. If the VVIX starts climbing above 100, it often precedes a VIX spike. Luna: So the VVIX is like a leading indicator for the VIX? Lucas: Not exactly leading, but it tells you whether options traders are betting on a VIX move. When the VVIX is high, it means the market expects the VIX to move, which often happens before a selloff. Right now it's not flashing a warning, which confirms that the current low-vol regime is likely to persist. Luna: Let's talk about the Russell 2000. It's underperforming the S&P and Nasdaq. Is there a way to trade that divergence in a low vix environment? Lucas: You can trade the IWM versus SPY spread. If you think the small caps are due for a catch-up, you could buy IWM and short SPY. But the catch is that in a low vix tape, these spreads tend to move slowly. You need patience. I'd only do it if I see a clear catalyst, like a rotation out of tech into cyclicals. Luna: Right now I don't see that catalyst. The headlines are all about Warsh and the Fed task force, but that's a slow-burn story, not a day-trading event. Lucas: Agreed. The Warsh news is more of a macro narrative. For day trading, you need something that moves price in the next few minutes. Earnings reactions, economic data releases, or unusual options activity. This morning, there isn't a major catalyst, so the tape will likely be quiet until the afternoon. Luna: Which brings us back to the VIX at 15. It's telling us to stay patient, keep our stops tight, and look for micro-moves in high-volume names. Lucas: Exactly. And that's the takeaway for today: don't fight the volatility regime. If the VIX says the market is calm, trade accordingly. Don't force big swings that aren't there. The market will eventually give you a bigger move—you just have to be ready when it does. Luna: And in the meantime, there's always money to be made in the small moves if you're disciplined. Lucas: Right. So that's our framework for trading into a VIX at 15. Next time, we'll look at how to adjust if the VIX starts creeping back toward 18. Luna: Looking forward to it.