Latest / The Day Trading Podcast with Fexingo: Active Trading, Charts, and Short-Term Market Strategy / How Day Traders Read the VIX and VVIX Divergence for Entries
Transcript
- Lucas: The VIX closed today at 17.16 — up six and a half percent over the last five sessions. But the VVIX, which measures the volatility of the VIX itself, hit 95.28, up over eight percent in the same period. That divergence is worth paying attention to. Luna: So the VIX is elevated but not screaming, while the VVIX is telling us options on the VIX are getting more expensive at a faster clip. What's driving that? Lucas: Two things, I think. First, the July rate hike speculation — Fed Governor Waller today basically said the Fed shouldn't 'fight the last war' on inflation but kept the door open for more hikes. That uncertainty is keeping the VIX from collapsing back to 14 or 15. Luna: Right, but that's been the story for weeks. The VVIX spike feels more acute. Lucas: Exactly. The second driver is geopolitical — the Iran war volatility that's been rattling energy markets and defense stocks. Big banks are about to report booming revenue partly from that, but for traders, the tail risk is real. The VVIX is basically the market pricing in a higher probability of a sharp vol spike, even if the VIX itself hasn't exploded yet. Luna: So what's the trade? Do you buy VIX calls here, or do you wait for the VIX to confirm? Lucas: I think the VVIX divergence is actually a signal to be careful. When the VVIX rises faster than the VIX, it often means the options market is pricing in a lot of tail risk but the spot VIX hasn't caught up. That can mean one of two things: either the VIX is about to rip higher, or the VVIX is overpricing fear and will revert. I lean toward the latter right now, because the S&P 500 is still above 7500 and the trend is intact. Luna: So you'd fade the fear? Sell premium? Lucas: Potentially. But I'd be very selective. Selling VIX futures or options when the VVIX is elevated is like catching a falling knife — the VIX can gap up fast on a headline. I'd rather look for a mean-reversion play on the VIX itself, maybe using a short-term VIX ETF, but only if the VIX touches the 18 or 19 area. Right now at 17.16, it's in no-man's-land. Luna: There was a similar setup back in early June, when the VIX was around 16 and the VVIX was in the low 90s. The VIX eventually dropped to 14.50 before the Iran news hit. Lucas: Good memory. That's exactly the pattern — the VVIX spike without VIX confirmation often precedes a vol reversion, unless a new shock arrives. And with the SpaceX IPO and big bank earnings this week, there's enough event risk to keep the VIX elevated but not enough to send it to 25. Luna: So for day traders, the VIX and VVIX divergence is more of a context signal than a direct entry signal. What's the concrete takeaway? Lucas: I'd watch the VIX 16 level as a floor. If it breaks below 16, that divergence is resolved and you can expect lower vol. If it holds 16 and spikes toward 19, the VVIX was right, and you want to be long vol or hedged. The key is to not over-trade the divergence itself — use it to gauge whether the options market is getting ahead of itself. Luna: Speaking of the options market, there's been a lot of chatter about Kalshi launching a Pro product with perpetual futures for traders juggling multiple markets. Does that change anything for day traders? Lucas: It's interesting, but for most day traders, the game is still about reading the big indexes and volatility. Kalshi's move is more for the prediction market crowd. I'd stick with the core vol indicators. Luna: Fair. So bottom line: VIX at 17, VVIX at 95 — be cautious, don't chase the fear, but don't ignore it either. Lucas: Exactly. And if you find our breakdowns helpful for navigating days like this, consider supporting the show at buy me a coffee dot com slash fexingo. It keeps us independent and ad-free, and we genuinely appreciate it. Luna: Yeah, it's a small way to help us keep doing this daily. And it really does make a difference. Lucas: So to circle back — for tomorrow's open, I'm watching the VIX 16 level and the S&P 500's 7500 support. If we get a quiet overnight, the divergence might start to close. If headlines heat up, prepare for a vol breakout. Either way, have a plan.