Latest / The Day Trading Podcast with Fexingo: Active Trading, Charts, and Short-Term Market Strategy / How Day Traders Read the VVIX 97 Level for Momentum Reversals
Transcript
- Lucas: So the VVIX closed at 97.31 today, up about 11 and a half percent over the last five days. The VIX itself is at 16.73, up about 11 percent over the same stretch. And I think this specific pairing — the VVIX just shy of 97, with the VIX under 17 — is actually a really useful signal for day traders looking for a momentum fade. Luna: Interesting. So the VVIX is the volatility of the VIX — it's measuring how much the options market expects the VIX itself to move. And at 97, it's getting into a zone that historically has preceded a mean reversion. Lucas: Exactly. And if you look at the last couple of years, when the VVIX pushes above 95 while the VIX stays in that 15 to 18 range, you often get a sharp reversal in the VIX within the next one to three trading sessions. That reversal then feeds into a broader shift in equity momentum. Luna: Right, because a high VVIX suggests the market is pricing in a lot of uncertainty about volatility itself. That can be a contrarian signal — options dealers get stretched, and they start hedging by buying or selling the underlying, which accelerates the move. Lucas: Yeah, and today we have a nice setup. The S&P 500 is at 7534, down about half a percent over five days. The Nasdaq is off 1.5 percent in the same period. So we've had a gradual drift lower, not a crash, and yet the VIX has crept up. The VVIX has popped even more. That divergence is where the opportunity lives. Luna: So what's the specific trade setup you're looking at? Give me the entry criteria. Lucas: I'd look for the VIX to make an intraday high above 17 while the VVIX tags 97 or higher. If that happens and the VIX then fails to hold above 17 — say it closes back under 16.5 — that's a signal that the volatility spike is exhausting itself. At that point, I'd look to buy the S&P 500 or the Nasdaq on a short-term basis, targeting a two- to five-day bounce. Luna: So you're using the VVIX as a leading indicator for the VIX, and then the VIX as a proxy for equity direction. That makes sense. But what about the fundamental backdrop? We had Dallas Fed President Logan today calling for 'modestly' higher interest rates. That could be keeping a lid on any rally. Lucas: Right, and that's actually a reason to be careful. A hawkish Fed comment can create a ceiling for equities, especially if rates are already elevated. But in the short term, the volatility structure is telling us that the options market has already priced in a lot of that uncertainty. The VVIX at 97 is saying 'we've hedged enough.' If the market doesn't get a bigger catalyst, the hedges get unwound. Luna: And that unwinding is what creates the reversal. So you're not predicting a huge rally, just a mean reversion in the volatility surface. Lucas: Precisely. I'd set a profit target on the S&P 500 around 7600, which is about 1 percent higher. And I'd use a stop just under 7500, which is a key support level. If we break below that, the VIX would likely spike to 18 or more, and the VVIX would go to 100 or higher. Luna: So a tight risk-reward. One percent upside potential to maybe 1.5 percent downside risk. That's not a home run, but it's a high-probability setup if the VVIX signal is right. Lucas: Exactly. And the key is to wait for the confirmation — the VIX failing to hold above 17. If you jump in too early, you could get caught in the spike. The VIX could go to 18 before reversing. Patience is the edge here. Luna: I also think it's worth noting that the VVIX is often ignored by retail traders. Everyone watches the VIX, but the VVIX gives you a read on whether the VIX move is likely to sustain or reverse. Lucas: A hundred percent. That's why I like to share these levels. It's a way to get a step ahead. And honestly, it's the kind of content we love digging into on this show. Luna: Speaking of which — the show itself stays ad-free because of listeners who support it directly. If our trading conversations have helped you think about a decision differently, you can support that choice at buy me a coffee dot com slash fexingo. No pressure, just a way to keep this going without corporate interruptions. Lucas: Yeah, I appreciate that. It means we can focus on what matters — the actual setups and the data. So back to the VVIX: I also look at the term structure. The front-month VIX futures are trading around 16.8, which is basically spot. That's a flat curve, which usually accompanies a turning point. Luna: Right, when the curve is flat, it means the market sees no significant volatility ahead. But the VVIX at 97 says the market sees a lot of variance in that volatility. That tension is what we're trading. Lucas: Exactly. So tomorrow morning, I'll be watching the VIX opening level. If it opens above 17 and then fades, that's my trigger. If it opens lower, I'll wait. The setup is defined, the levels are set, and the VVIX is our compass. Luna: Alright, let's see how it plays out. Thanks for breaking it down.