Latest / The Day Trading Podcast with Fexingo: Active Trading, Charts, and Short-Term Market Strategy / How Day Traders Read the VVIX 93 Level for Momentum Entries
Transcript
- Lucas: If you pulled up the VIX this morning and saw 16.29, you'd probably think, okay, pretty calm tape. But the VVIX is at 93.53, up almost two and a half percent in the last five days. And that gap—volatility itself staying quiet while the volatility of volatility is creeping up—is exactly the kind of signal day traders can act on before the market makes its move. Luna: So the VVIX is basically the VIX's volatility. It tells you how much options traders expect the VIX itself to swing around. When the VVIX rises while the VIX is flat, someone is betting on a shakeup. Lucas: Right. And we're in a pretty interesting moment for that signal. The S&P 500 closed yesterday at 7,544, up about eight-tenths of a percent over five days. The Nasdaq's up nine-tenths. Earnings season is rolling, banks like Goldman and JPMorgan just reported strong numbers. But the VIX hasn't collapsed—it's actually ticked up alongside the VVIX. That's unusual. Luna: Because normally when stocks rally, the VIX drops. But here it's holding in the mid-16s. That's not crisis level, but it's not complacent either. Lucas: Exactly. And the VVIX at 93 is telling us that options market makers are pricing in a larger range of outcomes for the VIX over the next thirty days. The 90 to 95 zone on the VVIX has historically been a trigger area. If it pushes through 95, the VIX often follows within a few sessions. Luna: So if I'm a day trader looking at this, what's the actual play? Is it a VIX call spread? Or do you wait for the VIX to confirm? Lucas: There are two schools. The first is a direct VIX play: if the VVIX breaks above 95, you buy VIX calls or call spreads expiring in the next two to four weeks. That's betting volatility accelerates. The second is the contrarian trade: if the VVIX fails at 95 and rolls over, you short VIX futures or buy put spreads, betting the calm holds. Luna: So it's a binary setup. But which side has the edge right now? Because the VVIX has been grinding higher for a few days without a VIX breakout. That feels like pressure building. Lucas: It does. And the data backs that up. Over the last sixty days, every time the VVIX rose more than 2 percent in a week while the VIX was flat, the VIX eventually moved an average of 1.3 points higher within the next ten trading days. That's not a guarantee, but it's a strong tendency. Luna: Okay so the historical edge is on the long volatility side. But I want to push back on one thing—the Fed. Chairman Warsh testified yesterday and talked about regime change on inflation. That could actually suppress volatility if markets believe the Fed is serious. The VIX might stay low. Lucas: That's a fair point. And it's the reason the VVIX signal isn't a slam dunk. The Fed narrative is a powerful anchor. But here's the thing: the VVIX is a market-based measure of uncertainty about uncertainty. It doesn't care about your opinion on Warsh. It's saying options traders are hedging for a bigger swing in VIX than what we've been seeing. That's a real footprint. Luna: And you can use that footprint as a day trader without taking a directional view on the S&P 500. You're just trading the volatility of volatility. That's pretty niche, but for the right trader it's a clean setup. Lucas: Exactly. And you don't need a complicated platform for it. You just need the VIX and VVIX on your screen, and you need to watch the 93 to 95 band. If the VVIX breaks 95 with conviction, you go long VIX. If it stalls and reverses, you look for short VIX positions or even just sell premium in single-name options. Luna: Speaking of single-name options, the bank earnings this week are a good testing ground. JPMorgan and Goldman both beat estimates, but their stocks didn't scream higher. That's another form of suppressed volatility. If the VVIX pops, those stocks might see bigger moves in either direction. Lucas: Great observation. When the VVIX rises, it's not just about the index. It tends to lift implied volatility across the board, especially in sectors that are already in focus. Bank stocks, tech, anything with high options volume. So a day trader could also use the VVIX as a filter for which names to trade—if VVIX is elevated, look for breakout candidates with high options flow. Luna: Right, because increased volatility expectation often precedes actual realized volatility. So you're basically getting a lead indicator. Lucas: And that's the whole edge. Most traders look at VIX and think they're reading the fear gauge. But the VVIX is the fear gauge for the fear gauge. It tells you when the market is about to change its mind about how volatile it expects to be. That's a faster signal. Luna: Let's talk about the exact entry mechanics. If I see the VVIX touch 95 on an intraday basis, what's my trigger? Lucas: You want to see a clean break—not a spike that reverses in five minutes. I like to see the VVIX close above 95 on a 15-minute chart, or hold above 94.5 for at least an hour. Then I enter a VIX call spread: buy the 17.5 call and sell the 22.5 call expiring in three to four weeks. That keeps the cost down and defines the risk. Luna: And the other side? If it fails? Lucas: If the VVIX hits 95, fails, and drops back below 92, I'd sell a VIX call spread—say sell the 20 call and buy the 25 call—or just short VIX futures at the next session open. The stop would be if VVIX reclaims 95. Luna: That's a tight stop. But with VVIX currently at 93.5, you're not far from either trigger. So the next few days could be decisive. Lucas: Yeah, and I'll be watching. One thing I want to mention—since we talk about this kind of edge a lot on the show, a handful of listeners chip in monthly through buy me a coffee dot com slash fexingo, and that's actually what keeps this podcast ad-free and lets us spend time on these detailed setups. Luna: It's true. No ads, no sponsors pushing products. Just listeners who find value in the show and want to see it continue. If that's you, you know where to find it. Lucas: So back to the VVIX—another thing I look at is the term structure. Right now, the VIX futures curve is in contango, but not steeply. The front-month is at 16.45, the second month at 17.2. That's a mild upward slope. But if the VVIX breaks out, that contango can flatten quickly as front-month volatility rises. Luna: That's a great secondary confirmation. If you see the front-month VIX future jump relative to the second month, the VVIX move is real. If it's just a VVIX spike while futures barely budge, it might be a false signal. Lucas: Exactly. That's why I never trade the VVIX alone. I want alignment with the futures curve. And I also want to see the VIX itself above 16. If the VIX is below 15, the VVIX signals tend to be less reliable because the starting volatility is just too low. Luna: So the current environment—VIX at 16.29, VVIX at 93.5, futures in mild contango—is actually a sweet spot for this trade. Not too low, not too high. Lucas: It's the goldilocks zone for volatility traders. And that's why I think this week, with earnings rolling and Fed testimony fresh, is a perfect time to have this signal on your radar. Luna: One more thing—how do you manage the trade if the VIX doesn't move for three or four days? That theta decay can eat into your options. Lucas: You set a time stop. If the VIX hasn't moved 1 point within five trading days of the breakout, I close the position. The VVIX signal has a shelf life. If the catalyst doesn't materialize, you move on. Luna: Discipline. That's the real edge. Lucas: Always. So bottom line: watch VVIX at 93 to 95. A break above triggers a VIX call spread. A failure triggers a short VIX position. Use the futures term structure for confirmation. And manage your time risk. That's the play. Luna: And if you want to follow along with live charts, we'll be tracking this in real time over the next few days. Lucas: Yeah, we'll keep an eye on it. Thanks for listening.