Latest / The Day Trading Podcast with Fexingo: Active Trading, Charts, and Short-Term Market Strategy / How Day Traders Read the VVIX Spike Above 100
Transcript
- Lucas: The VVIX closed yesterday at 104.87. That is a ten percent jump in five days, and it puts us above a hundred for the first time since early May. Luna: And the VIX itself is sitting at 18.77, up about nine percent over the same period. So the volatility of volatility metric is actually outpacing plain volatility. Lucas: Exactly right. And for day traders — especially anyone trading options or momentum — that divergence is the signal. The VIX says we're in mildly elevated fear, but the VVIX says the market is pricing in rapid changes in that fear level. That's a different beast. Luna: Before we go deep on that — you know, we keep this show ad-free by design. If our trading conversations have helped you think about a setup or a risk differently, you can support that choice. The link is buy me a coffee dot com slash fexingo. No pressure, just helps us keep it independent. Lucas: Yeah, I appreciate that. It's a small way to keep the show exactly what it is. And now — back to the VVIX. The last time we saw a move like this, we were coming off the April sell-off. That spike resolved with a three-week grind higher in equities. Luna: So you're saying a VVIX spike above a hundred doesn't necessarily mean a crash. It can signal a volatility regime shift, but the direction is ambiguous. Lucas: Right. The VVIX measures the implied volatility of VIX options. When it jumps, options market makers are pricing in larger swings in the VIX itself. That typically happens ahead of big macro events — think FOMC days, CPI releases, or earnings season inflection points. Luna: We had Dallas Fed President Logan calling for 'modestly' higher rates just this week. That kind of hawkish noise could be feeding the VVIX. Lucas: It's a factor. But the VVIX also has a technical story. Look at the chart: it bounced off the 93 level, which was our episode 112 topic, and now it's screaming above 100. That's a twenty-point move in a week. For day traders, the play is not to predict the market direction — it's to trade the volatility cluster. Luna: How do you actually trade that? I mean, I can't short the VVIX directly. Most retail traders can't. Lucas: You trade it through options on the S&P 500 or on SPY. When the VVIX is high, option premiums are elevated — both calls and puts get more expensive. The strategy is to sell premium, not buy it. Sell strangles or iron condors with wide wings, capturing that elevated theta decay. Luna: But selling premium in a high vvix environment is risky if the volatility spikes further. You can get run over. Lucas: That's why you need a defined risk structure. I look for a VVIX reading above 105 to start scaling into short premium positions. Below 105, I stay neutral or trade the long side with tight stops. Yesterday's close at 104.87 tells me we're right at that borderline. Luna: So today, July 18th — we open with the VVIX at 104.87. If it opens above 105, you'd start selling premium. If it gaps down, what then? Lucas: If it gaps down below 100, I'd actually look to buy puts on SPY for a quick intraday scalp. A VVIX breakdown often precedes a VIX breakdown, and that tends to coincide with a market sell-off as the fear evaporates into price drops. Luna: Counterintuitive. Most people think VIX down means market up. But you're saying when volatility of volatility drops, it can actually signal a capitulation move lower. Lucas: Exactly. Because the VVIX is a leading indicator for the VIX. A collapse in the VVIX often means options dealers are no longer hedging aggressively — that can precede a sharp move in the underlying. The 2020 COVID crash saw the VVIX peak at 196, then it collapsed to 80 while the S&P was still falling. That was the buy signal. Luna: Let's talk about specific entry rules. What's the exact setup you're watching today? Lucas: I'm watching a 15-minute SPY chart. If the VVIX opens above 105 and holds, I sell a put spread — say, the 545/540 put spread for a credit. The elevated premium gives me a good return on risk. If the VVIX opens below 100, I buy a 550 put for a scalp, targeting a five-point move in SPY over two hours. Luna: And stop placement? Because the VVIX can whipsaw intraday. Lucas: For the short premium trade, I set a hard stop if the VVIX crosses above 110. That's a level where the regime shifts again. For the scalp, I stop out if SPY reclaims the opening high. The key is to keep position size small — no more than two percent of risk capital per trade. This is a volatility play, not a directional bet. Luna: You mentioned the VVIX has a history of mean reversion. How long do these spikes typically last? Lucas: Looking back ten years, VVIX spikes above 100 resolve within five to ten trading days on average. The current spike started July 13th. So we're about four days in. That suggests the premium-selling opportunity could last another week or so before the VVIX mean-reverts back toward the 90s. Luna: And the S&P 500 at 7458 — down about 0.8 percent over five days. We're not in freefall territory. The VIX at 18.77 is elevated but not panic. So the VVIX is really the outlier. Lucas: That's the tradeable anomaly. The VIX and the VVIX don't always move together. When they diverge, options markets are mispricing something. As day traders, we exploit that mispricing. Today, I'm leaning toward selling premium with defined risk, and I'll adjust if the VVIX breaks 105 to the upside. Luna: One thing I want to circle back on — you mentioned using SPY options. But some traders might be tempted to trade VIX futures or VIX options directly. What's your take? Lucas: VIX futures and options have contango and backwardation dynamics that can wreck a day trader. The VIX itself is not investable — you're trading futures that decay. SPY options are cleaner. The VVIX is just a signal, not a tradable instrument. Use it to read the market's fear of fear, then execute on something liquid. Luna: So the takeaway is: watch the VVIX today. Above 105, sell premium. Below 100, buy puts for a scalp. And keep stops tight. Lucas: That's it. One concrete number: 105. If the VVIX stays above that, the volatility complex is intact. If it breaks below, expect a sharp move in SPY. Either way, there's a trade. Luna: I'm going to have that number on my screen all session. Lucas: Good. And remember, the VVIX at 104.87 is a flashing yellow light — not red, not green. It's telling you to be nimble. Day trading is about adapting to the signal, not fighting it.