Latest / The Bear Market Podcast with Fexingo: Surviving Downturns, Buying the Dip, and Long-Term Resilience / Why the VIX at 19 and VVIX at 105 Signal a Volatility Regime Change
Transcript
- Lucas: So the VIX closed yesterday at 18.77, up about nine and a half percent on the week, and the VVIX — that's the index that measures the volatility of VIX options — hit 104.87, up ten percent. Luna: Right. Both spiking together. That's not something we see every day. Lucas: No, it's not. And the reason it matters is that the VIX and the VVIX don't always move in lockstep. Sometimes the VIX can be elevated while the VVIX stays flat — that's a normal volatility event, like a data surprise or a geopolitical headline. But when both jump at once, it suggests the market is repricing the uncertainty around volatility itself. Luna: Meaning options traders are suddenly less sure about where the VIX is going next? Lucas: Exactly. The VIX tells you the market's expectation of S&P 500 volatility over the next thirty days. The VVIX tells you the market's expectation of volatility of the VIX itself. So when the VVIX surges, it means options dealers are pricing in a wider range of possible outcomes for the VIX. That's a signal that the volatility regime might be shifting. Luna: And the VVIX at 105 — that's a high number historically, right? Lucas: Very high. The long-term average for the VVIX is somewhere around 85 to 90, and it rarely stays above 100 for long. When it does, it's usually a precursor to a significant market move, often to the downside. You can look back at the COVID crash in March 2020, or the September 2022 sell-off — both times the VVIX printed well above 100 while the VIX was also elevated. Luna: So you're saying this might be a warning sign. Lucas: It's a signal, not a prediction. But it's worth paying attention to. The combination of VIX at 18.77 and VVIX at 105 tells me that the options market is unusually nervous. And when the options market gets nervous, it tends to be right — not about timing, but about the direction of risk. Luna: Let's take a step back though. The S&P 500 is still at 7,458 — that's not far off all-time highs. The VIX at 19 is elevated but not panic territory. What's driving this? Lucas: Good question. I think part of it is the yield curve steepening — the ten-year yield is at 4.57 and the two-year at 4.16, so the spread is 37 basis points, still positive but narrowing. The market is trying to figure out whether the economy is slowing enough to force the Fed to cut, or whether inflation is sticky enough to keep rates higher for longer. Dallas Fed President Logan came out yesterday saying rates need to go 'modestly' higher — that adds to the uncertainty. Luna: And that uncertainty shows up in the volatility indices. Lucas: Right. But there's also a technical factor. The VVIX is heavily influenced by the cost of tail risk hedges — out-of-the-money put options on the VIX. When big institutions start buying those en masse, the VVIX spikes. So the VVIX at 105 tells me someone, probably large asset managers or hedge funds, is paying up for crash protection. They're not waiting for the VIX to confirm the crisis — they're buying volatility before the crisis hits. Luna: And the VIX itself — 18.77 — is that mostly driven by the same demand for puts on the S&P 500? Lucas: Partly. But the VIX also reflects the volatility risk premium, which is the compensation investors demand for bearing volatility risk. When the VIX is at 19, the risk premium is relatively high, which means options are expensive. That's actually a double-edged sword: it makes hedging costly, but it also creates an opportunity for sellers — if you have the stomach for it. Luna: Speaking of expensive — if today's conversation has been worth a coffee to you, you know where to find the link. It's buy me a coffee dot com slash fexingo. We keep this show ad-free, and listener support is what makes that possible. Lucas: Yeah, completely agree. It's a small gesture, but it genuinely helps us keep doing this. Alright — back to the VIX and VVIX. So what do you do with this information, Luna? If you're an investor looking at these numbers today — July 18, 2026 — what's the takeaway? Luna: I think the first thing is: don't panic. The VIX at 19 is not a crash signal. But it is a reminder to check your portfolio's risk exposure. If you've been riding a high-beta, momentum-driven strategy through the summer, maybe it's time to take some profits or buy some protection. Lucas: Specifically, what kind of protection? Buying puts on the S&P 500 is expensive right now because the VIX is elevated. But you could look at put spreads, or even just reducing position size in the most volatile names. Another approach is to increase cash allocation — that's a form of protection that costs nothing. Luna: And for those who are more tactical, there's an argument for buying VIX call options when the VVIX is low — but that's not the case today. The VVIX is already high, so buying VIX calls now is late to the party. Lucas: Exactly. The VVIX at 105 means the market has already priced in a lot of volatility uncertainty. So if you're looking to hedge, you want to do it with longer-dated options, not front-month stuff, because the term structure is likely in contango — the back month options are cheaper relative to the front. Luna: Let's talk about the broader context. The VIX is up nine percent this week, but the S&P 500 is only down one and a half percent over the last five days. So volatility is rising faster than the market is falling — that's a classic pattern for a volatility regime change, not a crash. Lucas: Right. If this were a crash, you'd see the VIX spike 30 or 40 percent in a day. A slow grind higher in the VIX over several days is more indicative of a repricing of risk, not a sudden panic. And the VVIX following suit confirms that the options market is adjusting expectations, not just reacting to one headline. Luna: So the message for listeners might be: this is a time to be cautious, but not to make drastic moves. Check your risk, maybe trim some winners, and don't chase the dip until the volatility pattern clarifies. Lucas: I'd add one more thing. The VIX and VVIX both spiking is a signal to pay attention to the next few weeks. Historically, when the VVIX goes above 100 and the VIX is above 18, the market tends to be more volatile for at least a month. So if you're a short-term trader, size down. If you're a long-term investor, this is probably noise — but noise that could last a few weeks. Luna: And it's worth watching the VIX term structure — specifically the spread between the front-month VIX futures and the second month. If that spread widens further, it confirms that the market expects volatility to persist. Lucas: That's a great point. The VIX futures curve is currently in contango, meaning the front month is below the back months. But if that contango starts to flatten or invert — meaning the front month becomes more expensive than the back — that's a powerful signal that the market is in crisis mode. We're not there yet, but it's something to watch. Luna: Alright, so to sum up: VIX at 19, VVIX at 105 — a signal, not a siren. Be aware, be prepared, but don't overreact. Lucas: Exactly. And we'll keep tracking this. In the next episode, I want to look at how the VIX and VVIX relationship has evolved over the last decade and what it tells us about the changing nature of market risk. Luna: That sounds like a good follow-up. For now, thanks for listening, and we'll catch you next time.