Latest / The Day Trading Podcast with Fexingo: Active Trading, Charts, and Short-Term Market Strategy / How Day Traders Trade the Oil Rate Hike Feedback Loop
Transcript
- Lucas: Alright, it's eight thirteen in the morning on July 26th, and I'm already staring at a VVIX of 100.73. That's above the century mark again, and the VIX is sitting at 18.58 — not screaming panic, but definitely not complacent. And then there's oil, which is just ripping higher, and the odds of a Fed rate hike this year have surged in the last forty-eight hours. Luna: You're looking at the feedback loop: oil up, inflation expectations up, rate hike odds up, tech stocks down. The Russell's already down point one percent in the last five days while the S&P is basically flat. That's a divergence we should be trading. Lucas: Exactly. And the VVIX at 100.73 tells me tail risk is being priced in — not just garden-variety volatility. When the VVIX is above 100 and the VIX is only in the mid-teens, that ratio is elevated. It means options traders are hedging against extreme moves, not just a normal pullback. Luna: So what's the play? Are you buying puts on QQQ or shorting tech outright? Lucas: I'm looking at a two-legged setup. First leg: short the Russell 2000 via IWM puts. Small caps are more sensitive to rate hikes, and the index is already weakening. Second leg: go long the energy sector via XLE calls. Oil ripping higher means energy margins expand, and that sector benefits from the same inflation that's hurting tech. Luna: That's a clean pairs trade. But the Moody's warning about AI spending threatening credit quality at Amazon, Meta, Alphabet — that adds another weight on tech. It's not just rates, it's a fundamental credit story. Lucas: Right, and that's the kind of catalyst that can accelerate the rotation. Day traders should be watching the VIX term structure too. If the front-month VIX futures start trading above the second month, that's a backwardation signal that confirms near-term fear. This morning, the VIX futures curve is still in contango, but barely — about six basis points. If that inverts, the Russell trade gets even more attractive. Luna: You mentioned the vvix to vix ratio earlier. Where's that at now? Lucas: It's about 5.4 — 100.73 divided by 18.58. Historically, when that ratio is above 5, it's a signal that tail risk is elevated relative to implied volatility. I've seen this pattern before in late 2023 and again in mid-2025, and both times it preceded a sharp two-to-three-day sell-off in the QQQ. So I'm watching for a break below the two-hundred-day moving average on the Nasdaq — that's around twenty-four thousand eight hundred right now. The Nasdaq is at twenty-four thousand nine hundred seventy-six, so we're uncomfortably close. Luna: You're basically saying the setup is in place: oil, rates, credit warnings, VVIX elevated. But what about the entry timing? Do you wait for a break of that moving average, or do you lean in now? Lucas: I lean in small now with a tight stop on the Russell short — maybe a stop if IWM closes above its twenty-day moving average. For the energy long, I'm already in. XLE is up about three percent in the last week, but with oil continuing to rally, there's room. The key is position sizing. Because the VVIX is elevated, I'm cutting my position size by about thirty percent compared to normal. Tail risk means the moves can be bigger than expected, so you want to survive the noise. Luna: That's a good discipline. You know, conversations like this really help me frame my own risk decisions. It's one of the reasons I value this show — it's ad-free and focused on actionable detail. If you're a regular listener and these talks have helped you think about a trade or a risk differently, consider supporting us. It's what keeps the podcast independent and free from sponsor noise. Lucas: Yeah, absolutely. Listeners can do that at buy me a coffee dot com slash fexingo. No pressure, just a way to keep the lights on and the analysis flowing. Now, back to the markets — I want to zoom in on a specific ticker that's showing a weird divergence this morning. Luna: Which one? Lucas: Intel. It's in the premarket movers headlines — making a big move. According to the news, Intel is one of the stocks making the biggest moves premarket. I haven't seen the catalyst yet, but if it's surging, it could be a rotation out of the mega-cap AI names into value tech. That would actually be a contrarian signal: if Intel goes up while the broader tech falls, it confirms the sector rotation narrative. Luna: Intel's been beaten down so badly that any positive move is noteworthy. But I'd be careful — earnings season is still ongoing, and Intel reports next week. That could be a catalyst. Lucas: Right, so I'm not chasing it premarket. I'll watch the open. If Intel gaps up and holds above its fifty-day moving average, I might take a small long position as a hedge against the broader short. But my core trade remains the short on Russell and long on energy. Luna: One last thing on the VVIX: at 100.73, it's above the threshold you've talked about before for buying puts on the VIX itself. Are you doing that? Lucas: Not yet. The VIX at 18.58 is not cheap, but it's not screaming expensive either. I'd rather trade the VVIX indirectly through the Russell and energy pairs. If the VIX moves above 22, then I'll consider VIX calls or put spreads on the SPY. But for now, the signal is rotation, not crash. Luna: Good framework. So let's wrap with a forward look: what's the one number you're watching between now and the close? Lucas: The ten-year Treasury yield. Last I checked, it's around 4.15 percent. If it breaks above 4.25, that's the level that historically sends tech into a tailspin. The VVIX will likely spike above 105, and I'll add to my Russell puts. Until then, I'm comfortable with the pairs trade and tight risk management.