Latest / The Day Trading Podcast with Fexingo: Active Trading, Charts, and Short-Term Market Strategy / How Day Traders Read the VVIX Spike as VIX Falls
Transcript
- Lucas: So the VIX is down at fifteen point two eight, but the VVIX is actually up. That's the sort of divergence that gets my attention. Luna: The VIX falling while the VVIX ticks higher — that feels like the market is calm, but the people who price volatility are nervous. What does that actually tell us? Lucas: It tells us that the calm in the index might be a bit of a facade. The VVIX measures the expected volatility of VIX options, so when it rises while the VIX itself drops, it's often a sign that traders are hedging against a sudden move — even if the spot VIX hasn't caught up yet. Lucas: And you know, we keep this show free of ads because we think that's the right way to talk about money. If that kind of straightforward conversation has helped you think about a trade or a decision differently, you can support us at buy me a coffee dot com slash fexingo. It's a small way to keep this going. Luna: Yeah, I love that we don't have to wade through a mattress commercial to get to the charts. It's a clean feed, which is exactly what you want when you're scanning for setups. Lucas: So let's get into the numbers. Over the last five sessions, the S&P 500 is up a tenth of a percent to about seven thousand seven hundred twenty-eight, and the VIX has fallen three and a half percent. That's a classic grind higher on low implied vol. Luna: But the VVIX is up half a percent to ninety point nine. That's not a huge move, but it's in the opposite direction of the VIX. Is that enough to act on? Lucas: I think it's a yellow flag, not a red one. You want to see the VVIX diverging for at least a few days before you start fading the VIX. A single day's blip could just be noise. But when you get a five-day trend like this, it's worth respecting. Luna: So how do you actually trade that? I mean, the VIX is the thing most people watch, but the VVIX is a second-order derivative. How do you translate that into a strategy? Lucas: The first thing I look at is whether the VIX is near a support level. Fifteen point two eight is just above the mid-teens, which has acted as a floor for the past few months. When the VIX is hugging support and the VVIX is building a base, it often means a breakout is coming — but you don't know the direction. Lucas: So the play is to wait for the VIX to break either side of a narrow range. If it pops above fifteen point five, you start looking for put protection or short setups in index futures. If it drops below fifteen, you might actually see a complacency rally that could extend further. Luna: So you're not trading the VVIX itself, you're using it as a gauge for whether to trust the VIX. Got it. Lucas: Exactly. And the VVIX has a reputation for leading the VIX, especially around turns. There's been research showing that spikes in the VVIX often precede larger moves in the VIX by a few sessions. So if you see the VVIX climbing while the VIX is flat, you start tightening your stops. Luna: That makes sense. What about the broader market context? The Russell 2000 is up point three percent over the week, and the Dow is down one percent. That's a divergence in breadth, too. Lucas: Right, the small caps are holding up better than the blue chips, which is interesting. If the VIX is low and small caps are showing relative strength, that can be a sign that risk appetite is still healthy. But the VVIX is whispering that the options market is a bit more skittish. Lucas: So you've got this tug of war: index vol says 'all clear,' vol of vol says 'not so fast.' That's the sort of environment where you want to keep position sizes smaller and avoid adding to losers. Luna: So what's your rule of thumb for position sizing when the VIX and VVIX diverge like this? Lucas: I cut my normal size by about a third. If I'd normally risk a thousand dollars on a trade, I'm risking six or seven hundred. It's not about being scared — it's about respecting that the market is sending mixed signals. When the signals are clear, you can press harder. Luna: That's a good discipline. And it ties into something you've talked about before: the VIX smile curve. Is that relevant here? Lucas: It is, actually. The VIX smile shows implied vol across different strike prices for the VIX itself. When the smile is steep on the call side, it suggests traders are paying up for upside protection — which is another way of saying they expect a spike. And right now, with the VVIX up, that smile is probably getting a bit steeper. Luna: So you're saying the options market is subtly pricing in a bigger move, even though the spot VIX is low. That's the kind of nuance that separates a good day trader from a great one. Lucas: Exactly. And I want to give you a concrete example. A couple of weeks ago, we saw the VIX drop below fifteen and the VVIX was around eighty-five. The divergence was similar, and the market ended up selling off three days later. Not a crash, but enough to stop out a lot of breakout traders who got caught long. Luna: That's a great real-world case. So if you had been watching the VVIX, you might have been more cautious and avoided that whipsaw. Lucas: Exactly. It's not a guarantee, but it's an edge. The VVIX is one of those indicators that doesn't get a lot of attention because it's a bit abstract, but for short-term traders, it's a leading indicator that can help you time entries and exits. Luna: What about using the VVIX to trade VIX futures or options directly? Is that something you do? Lucas: I've done it, but it's not for everyone. The VVIX itself isn't directly tradable, but you can trade VIX options and effectively bet on the VVIX's direction. That's a more sophisticated play. For most day traders, I'd say use the VVIX as a filter, not as a direct instrument. Lucas: So here's my takeaway for today: when the VIX is low and falling, but the VVIX is rising, don't assume the calm is here to stay. Tighten your risk, watch for a breakout, and be ready to pivot. The market is giving you a subtle warning that the easy ride might be over. Luna: That's a solid frame. I'm going to start tracking the VVIX on my scanner. Any specific levels to watch? Lucas: For the VVIX, ninety is a round number that's been resistance in the past. If it closes above ninety, that's a stronger signal. And for the VIX, watch fifteen and fifteen point five as the key levels. A close above fifteen point five would be the first warning shot. Luna: Great, I'll keep it on my radar. Thanks, Lucas. That was really useful. Lucas: Thanks, Luna. And for everyone listening, keep an eye on that VVIX. It might just save you from a bad day.