Latest / The Bear Market Podcast with Fexingo: Surviving Downturns, Buying the Dip, and Long-Term Resilience / Why the VVIX at 92 Is a Signal Not an Indicator
Transcript
- Lucas: So the VIX is sitting around 16.8 as of this afternoon, up a bit over the past week. And every time the VIX hovers in that mid-teens range, you hear the same thing — 'complacent market', 'low fear', 'time to buy volatility.' I think that take is half right and half dangerous. Luna: Why dangerous? I mean, 16 is low historically, but it's not screaming trouble either. Lucas: Fair point. But the piece people miss is the VVIX — the CBOE's volatility of volatility index. That's at 92.6 today, up five percent in the last week. And when the VIX is relatively calm but the VVIX is creeping up, that tells me options traders are pricing in something that the spot VIX isn't capturing. Luna: Right, the VVIX measures the implied volatility of VIX options. So it's basically how much uncertainty there is about future uncertainty. Lucas: Exactly. And the typical relationship is that VVIX trades around five to six times the VIX level. So at VIX 16.8, you'd expect VVIX around 84 to 100. At 92.6, we're in the middle of that range — not extreme, but definitely on the higher side. The thing is, when VVIX rises faster than VIX, it's often a leading indicator that the VIX itself is about to jump. Luna: So you're saying the VIX at 16 might be misleadingly calm, and the VVIX is the real tell. Lucas: That's my read. Think of it this way: the VIX is the market's best guess of S&P 500 volatility over the next 30 days. The VVIX is the market's best guess of how wrong that guess might be. When VVIX rises, it means options dealers see a wider range of possible outcomes. And that often precedes a volatility event. Luna: But a lot of retail investors don't trade VIX options. Does the VVIX matter for someone just holding an S&P 500 index fund? Lucas: It should, because it's a signal about whether to add hedges or reduce risk. When VVIX is elevated, the cost of buying VIX calls or put spreads goes up. But the signal itself is useful even if you never touch options. If I see VVIX at 92 while the S&P is at 7,522, I'm at least looking at my portfolio and asking whether I have enough cash or defensive positions. Luna: Makes sense. So what's driving the VVIX higher right now? We've got Fed Waller saying hikes are still possible — that's one headline from today. And the yield curve is still steepening, though the ten-year yield actually ticked down a bit to 4.54. Lucas: Yeah, the ten-year coming off a bit, from 4.56 to 4.54, is a small move. But the spread between ten-year and two-year is now 35 basis points, down from 38 earlier this month. That steepening was happening fast, and now it's pausing. That kind of uncertainty — is the curve going to keep steepening or invert again — feeds into the VVIX. Options traders have to price a wider set of macroeconomic scenarios. Luna: And the big bank earnings are coming out this week, with all the noise around SpaceX IPO and Iran volatility. That could be adding to the tail risk premium too. Lucas: Absolutely. The VVIX doesn't care about one specific headline — it's a composite of all the tail scenarios traders are hedging. When you have geopolitical tension, a Fed that's data-dependent but hawkish-sounding, and a market that's priced near all-time highs, the options market naturally gets more expensive. The VVIX is just the meter for that. Luna: So if someone is listening and thinking about their portfolio right now, what's the actionable take? Lucas: I'd say don't ignore the VVIX just because the VIX looks low. If you're a long-term investor, this isn't a reason to panic. But it is a reason to check your allocation. Are you overexposed to growth stocks that might get hit if volatility spikes? Do you have a plan for what to do if the VIX jumps to 25? Because the VVIX is telling you that the probability of that jump is higher than the VIX level alone suggests. Luna: And if today's conversation helped you think about your portfolio a little differently, that's exactly why we do this show. We keep it ad-free and focused on the signal, not the noise. If that's useful to you, listener support is what keeps it going — buy me a coffee dot com slash fexingo. Lucas: Yeah, it's a small way to make sure we can keep digging into these topics without any outside pressure. We appreciate every bit of support — it really does make a difference. Lucas: Okay, back to the VVIX. One thing I want to highlight is that the VVIX at 92.6 isn't screaming 'sell everything.' But historically, readings above 95 have often preceded VIX spikes. We're right under that threshold. If it breaks above 95 in the next week or two, that would get my attention. Luna: What about the VVIX term structure? Is that giving any clues? Lucas: Good question. The VVIX futures curve is currently in contango — meaning longer-dated VVIX is higher than spot. That's normal. But the slope has flattened a bit, which suggests the market is pricing elevated volatility risk not just for next week but for the next few months. That's consistent with a slow-burn uncertainty rather than a one-day crash scenario. Luna: So maybe a slow grind higher in volatility, not a sudden spike. Lucas: Could be. And that's actually harder for a lot of portfolios because you can't just wait it out with a simple hedge. You need a more dynamic approach — maybe using put spreads or even VIX call spreads that are cheaper than outright puts. Luna: But for a passive investor, the simplest hedge is just having more cash or shifting to defensive sectors. You don't need to trade options. Lucas: Exactly. And that's the takeaway I'd leave listeners with: the VIX is a snapshot, but the VVIX is the movie. Right now, the movie is showing a slightly more uncertain future than the snapshot suggests. It doesn't mean the market is about to crash, but it does mean it's worth being a little more cautious and making sure your portfolio can handle a volatility spike. Luna: Alright, let's see where the VVIX goes this week. Thanks for listening, and we'll be back tomorrow with another episode. Lucas: Take care, everyone.