Latest / The Day Trading Podcast with Fexingo: Active Trading, Charts, and Short-Term Market Strategy / How Day Traders Read the VIX 14.90 After the Jobs Miss
Transcript
- Lucas: So the VIX closed at 14.90 today, down over six percent on the week, and this is after the biggest July jobs miss we've seen in years. That's a fascinating signal, and I think it's worth digging into because it's counterintuitive for a lot of day traders. Luna: Yeah, you'd think bad jobs data would scare the market, not calm it. But the VIX is basically the market's fear gauge, and it's been falling all week. Lucas: Exactly. And the key here is that the jobs miss actually raised the odds of a Fed rate cut in September. The market loves the idea of cheaper money, so it's rallying. The S&P is up over two percent in five days, the Nasdaq is up three. When the market's happy, the VIX drops, even if the underlying news is 'bad.' Luna: Right, so it's about expectation versus reality. The market had already priced in a strong economy, and now it's repricing for a potential cut. Lucas: Precisely. And for day traders, that's a crucial distinction. You can't just look at the headline and think, 'oh, bad jobs, sell everything.' You have to read what the market is actually doing with that information. The VIX dropping to 14.90 tells you that traders are not scared about the economy; they're actually more optimistic about policy. Luna: So what does that mean for our trading today? Are we just supposed to chase the rally, or is there a nuance? Lucas: I think the nuance is in the VIX itself. A level like 14.90 is historically low, but it's not extreme. It's below the 20 handle we've been watching, and it's been falling for a while. The real question is whether this is a stable low or a lull before a storm. Luna: And I guess the VVIX comes into play there, right? The VIX of the VIX. Lucas: Exactly. The VVIX closed at 90.42, down only 0.4 percent on the week. So while the VIX is falling, the volatility of the VIX is not dropping as much. That's a divergence that often signals the market is getting complacent, and complacency can be dangerous. Luna: So it's like the market is saying 'we're calm,' but the calm itself is fragile. That seems like a good time to be careful with size. Lucas: Yeah, and that's the practical takeaway. When the VIX is this low, option premiums are cheap, but that can lure you into overtrading. You need to be disciplined about your risk per trade, maybe even reduce it, because the market can gap unexpectedly when volatility is underpriced. Luna: That's a good segue into something I've been thinking about: how do you actually trade a falling VIX? I mean, you can't short the VIX directly, but there are ways to play it. Lucas: Right, and there are a few approaches. One is to trade the S&P 500 itself, or the Nasdaq, in the direction of the trend. When the VIX is falling, it's often a sign of a risk-on environment, so buying strength can work. But you have to be careful about chasing after a big up day. Luna: And what about the term structure? I know that's a big deal for VIX traders. Lucas: Yeah, the VIX term structure is crucial. Right now, the front-month VIX futures are probably trading at a discount to the spot VIX, or maybe a slight premium. When the curve is in contango, which is normal, it means the market expects volatility to rise in the future. That's a signal that the current low VIX might not last. Luna: So you're saying the VIX at 14.90 might be a good entry point for a volatility trade, like buying VIX calls or something? Lucas: It can be, but that's a more advanced play. For most day traders, the simpler approach is to use the VIX as a filter for your equity trades. If the VIX is falling, you can be more aggressive on the long side. If it starts to spike, you tighten up. Luna: And you have to watch the realized volatility too, right? Because implied can lag. Lucas: Absolutely. That's a mistake a lot of traders make. They see the VIX dropping and think the market is calm, but realized volatility, which is the actual daily moves, can be higher. Right now, with the S&P up two percent in a week, the realized vol is probably higher than the VIX suggests. That's a divergence you can exploit. Luna: How do you exploit it exactly? Like, if realized is higher, then implied is underpricing risk, so options are cheap? Lucas: Exactly. If realized volatility is higher than implied, then buying options, especially on index ETFs, can be a good trade. You're essentially buying cheap insurance. But you have to time it right, and that's where day trading gets tricky. Luna: I've noticed that on days when the VIX drops, the market tends to drift up slowly, but then there's often a sharp pullback in the afternoon. Is that a pattern you've seen? Lucas: Yeah, that's a classic low-volatility grind pattern. The market inches higher on low volume, then a big player hits the tape and price snaps back. It's why you need to be nimble and not get complacent just because the VIX is low. Luna: So what's the one thing you want our listeners to remember today? Is it to fade the calm, or to enjoy it while it lasts? Lucas: I think it's to respect the divergence between the VIX and the VVIX. When the VIX is falling but the VVIX is staying elevated, it's a warning sign. The market is getting complacent, and that's when you want to be prepared for a sudden move. So don't get caught flat-footed. Luna: And maybe that's a good point to mention that we have this show because of listeners like you. A couple of dollars a month genuinely keeps us going. If you've gotten something out of these episodes, you can support us at buy me a coffee dot com slash fexingo. Lucas: Yeah, it really does make a difference. Every bit helps us keep this ad-free and focused on the strategy. But back to the VIX — we also need to talk about what happens next week. Luna: Right, we have the CPI report coming out, and that could change the rate-cut narrative completely. Lucas: Definitely. The jobs miss has already shifted expectations, but if CPI comes in hot, the Fed might not be as eager to cut. That could send the VIX spiking. So keep an eye on the economic calendar and be ready to adjust. Luna: And what about the VIX level itself? Do you have a number that would signal real trouble? Lucas: I think if we see the VIX break back above 18, that would be a warning. But right now, we're in a sweet spot for day traders — enough movement to make money, but not so much that it's chaotic. Luna: So what's your plan for Monday morning? Are you going to be aggressive on the long side, or are you waiting for a dip? Lucas: I'm going to be selective. I'll look for stocks that are building bases and breaking out on volume, but I'll keep my position sizes a bit smaller than usual because the VIX is telling me the market could be complacent. I'd rather miss a big move than get caught in a sharp reversal. Luna: That sounds like a solid approach. And I think our listeners will appreciate that nuance. Lucas: Yeah, and remember, the VIX is just one tool. It's not a crystal ball. You have to combine it with your own analysis and risk management. But when the VIX is at 14.90 and the VVIX is at 90, it's a signal to stay alert. Luna: Alright, thanks for the insights, Lucas. That's all for today. We'll see you next time. Lucas: Take care, and happy trading.