Latest / The Day Trading Podcast with Fexingo: Active Trading, Charts, and Short-Term Market Strategy / How Day Traders Read the VVIX at 85 While VIX Climbs
Transcript
- Lucas: So the VIX is up almost four percent on the week, sitting at fifteen forty-five, but the VVIX, which measures the volatility of the VIX itself, is actually down one percent to eighty-five sixty-seven. That divergence is the kind of thing that makes me pay attention. Luna: Yeah, that's not a typical setup. Usually when the VIX climbs, the VVIX climbs with it, because traders get nervous about how fast volatility might move. Seeing them go in opposite directions feels like a signal. Lucas: It is, and I think it's worth unpacking because it tells you something about what the options market is actually pricing. The VIX went up, sure, but the fact that the VVIX is falling means traders aren't expecting that volatility to be sustained or to spike further. There's this weird complacency underneath the surface. Luna: Which is interesting because the S&P is down a bit on the week, and small caps are down even more. You'd think people would be hedging more aggressively. Lucas: Right. And look, before we go deeper, this is a good moment to mention that if you're getting value from these daily episodes, a couple of dollars a month genuinely goes a long way. You can support the show at buy me a coffee dot com slash fexingo. It's what keeps these going without ads, and it's a small way to say the conversations matter. Luna: Yeah, absolutely. It really does make a difference, even if it's just the price of a coffee. Lucas: So back to the VVIX. To me, this divergence is a classic sign that the recent uptick in the VIX is more of a corrective bounce than the start of a real volatility regime shift. When the VVIX is falling while the VIX rises, it usually means the move in the VIX is being driven by demand for near-term downside protection, not by a broad repricing of uncertainty. Luna: So the put buyers are active, but the people who trade the VIX itself are not really buying into it. That's a subtle but important distinction. Lucas: Exactly. And for a day trader, that's actionable. If you see the VIX pop but the VVIX stays flat or falls, you can lean against that move. Historically, these setups have a higher probability of mean reversion. The VIX tends to fade back toward its range, and that often happens within a day or two. Luna: So the play is not to chase the VIX spike but to wait for it to fail. What's the best way to time that entry? Lucas: I like to watch the ratio between the VVIX and the VIX. When that ratio starts to roll over, it's a good sign that the volatility bid is exhausting. Right now, with the VVIX at eighty-five sixty-seven and the VIX at fifteen forty-five, the ratio is roughly five point five. If that number starts to drop, it's a confirmation that the VIX rally is losing steam. Luna: And what about the level of the VVIX itself? Eighty-five is not super high, right? Lucas: Right, eighty-five is actually on the lower side. Over the past couple of years, we've seen it spike to over a hundred and twenty during real stress events. So eighty-five tells you that the options market is not very worried about a sudden acceleration in volatility. It's more of a 'we're a bit nervous but not panicking' type of reading. Luna: That aligns with the tape, to be honest. The S&P is down but only point four percent on the week, and the Dow is actually up. It's a sideways grind, not a sell-off. Lucas: Exactly. And that's the kind of environment where day traders need to be careful about getting too directional. The market is telling you 'I'm not sure', and the VVIX is confirming that. So your job is to stay nimble, trade the ranges, and not overstay your welcome. Luna: So what's the one signal that would change your read? What would make you say, okay, this divergence is over and volatility is actually coming? Lucas: The VVIX popping back above eighty-nine, for starters. That's a level that's been intraday resistance recently. If we see the VVIX break above that while the VIX is holding or climbing, it tells me that traders are starting to hedge the hedges, and that's when a sell-off can feed on itself. Luna: So that's your trigger. And for the listener, that's a concrete level to watch on your screens. Lucas: Yeah, and I'd also look at the five-day moving average of the VIX. Right now it's probably around fifteen point two. If the VIX closes above that for two days in a row, that's a warning shot. But as long as it stays below fifteen fifty, I'm not convinced we're in for a real volatility expansion. Luna: So the VIX at fifteen forty-five is right at that line. It's a coin flip, but the VVIX is tilting the odds toward the downside. Lucas: Precisely. And that's the kind of edge you can actually trade. You're not guessing the next headline; you're reading the structure of the options market. When the VVIX diverges from the VIX, it's one of the cleanest tells we have that the market is not as afraid as it pretends to be. Luna: I also think it's worth noting that the VVIX is often a leading indicator for the VIX itself. If the VVIX starts to turn up, you can sometimes catch the VIX move before it happens. Lucas: That's a great point. The VVIX tends to lead by a few hours or even a day, because it's reflecting how traders are pricing the tails. So if you see the VVIX start to perk up, even if the VIX is quiet, that's your early warning to tighten up your stops or take some risk off. Luna: How do you actually use that in a day trade? Like, do you set alerts on the VVIX level? Lucas: I do. I set alerts on both the VVIX and the VIX itself, but I pay more attention to the VVIX during quiet periods like this. If the VVIX jumps more than two points in a fifteen-minute window, I know something is changing under the surface, and I'll start looking for momentum in the indexes. Luna: That's a smart way to filter out the noise. Most people are just watching the VIX, but the VVIX gives you that extra layer of information. Lucas: And it's not just about levels. It's about the shape of the term structure. When the VIX futures are in contango, which they are now, that's another reason to be cautious about chasing upside. The market is comfortable with the current level of risk, and the VVIX is confirming that. Luna: So the bottom line is: the VIX is up, but the VVIX is not confirming, and that means the move is likely to fade. That's a concrete setup you can trade. Lucas: Yeah, and the trade is either to fade the VIX spike via shorting VIX futures or to buy puts on the VIX itself, or if you're trading equities, to sell into any early strength and look for the dip-buyers to get trapped. The key is to be patient and wait for the VIX to show signs of rolling over, not to jump in immediately. Luna: What about the VVIX at eighty-five? Is that historically a buy zone for volatility? Like, does it mean that a spike is more likely from here? Lucas: Not necessarily. The VVIX doesn't have the same mean-reversion characteristics as the VIX. It can stay low for long stretches. The more useful signal is the divergence, not the absolute level. When the VVIX is low and the VIX is climbing, it's a sign that the move is not being taken seriously by the people who price volatility options. Luna: So it's the relationship that matters. That's a good takeaway for anyone trying to read these indicators. Lucas: And I want to stress that this is a tool for the short-term. For a day trader, the VVIX is another piece of context that helps you avoid getting caught on the wrong side of a fade. It's not a crystal ball, but it's a useful filter when you're deciding whether to trust a move or fade it. Luna: So if the VVIX starts to tick up tomorrow morning while the VIX is flat, that's your cue to pay attention. Lucas: Exactly. And if it breaks above eighty-nine, you might want to consider putting on some protection or at least cutting down your size. That's the kind of pre-planned response that separates the pros from the amateurs. Luna: Do you have a specific trade you'd put on right now, based on this setup? Lucas: If I were forced to, I'd be looking for a short-term fade in the VIX if it tries to push above fifteen seventy-five and fails. That's a level that's been resistance recently. And I'd use the VVIX as my confirmation. If it stays below eighty-nine while the VIX is testing that level, the fade has a high probability of working. Luna: And for someone who doesn't trade VIX products, what's the equity equivalent? Lucas: You can use it as a bias for the broader tape. If the VIX is fading and the VVIX is not confirming, you can look for long setups in the S&P or the NASDAQ, but with a stop that's tight. The market is likely to stay in a range, so you're looking for mean-reversion plays rather than trend days. Luna: That makes sense. I think the key is to avoid getting caught up in the headline numbers and instead focus on what the volatility market is telling you about the next few hours. Lucas: Right. The VIX went up, but the VVIX is saying 'don't worry about it'. That's a useful piece of information. And it's the kind of thing you can only get by looking at both together. Luna: Well, thanks for breaking that down. I'm definitely going to be watching the VVIX level tomorrow morning. Lucas: It's a good habit. And if you want to keep getting these daily reads, remember you can support the show at buy me a coffee dot com slash fexingo. Every little bit helps. Luna: Yeah, it really does. And it keeps us independent, which is worth something.