Latest / The Day Trading Podcast with Fexingo: Active Trading, Charts, and Short-Term Market Strategy / How Day Traders Read the VVIX 104 Level for Portfolio Hedging
Transcript
- Lucas: VVIX closed above 104 today. That's the highest since early June, and it's moving up while the VIX sits at 18.77. For day traders, that's a signal worth talking about. Luna: So the VIX is up about nine percent over five days, but the VVIX is up more than ten percent. The gap is widening. Lucas: Exactly. The VIX measures implied volatility on the S&P 500 itself. The VVIX measures implied volatility on VIX options. When the VVIX rises faster, it tells us options traders are pricing in a bigger potential move in the VIX — which usually means they expect a spike in fear. Luna: So the market is betting that volatility itself is about to get more volatile. That's a tail-risk signal. Lucas: Right. And it's especially relevant with earnings season ramping up and the Fed's new communication tool — some are calling it 'WarshGPT' — adding a layer of uncertainty. The Dallas Fed president Logan called for modestly higher rates just this week. Luna: Let's talk about what this means for a day trader. How do you actually use the VVIX 104 level in a trade? Lucas: The general rule I follow is: when the VVIX is above 100 and diverging from the VIX, it's time to lighten up on directional bets and consider hedging. Not necessarily going short, but protecting long positions with put spreads. Luna: So you're not predicting a crash. You're just acknowledging that the options market is paying you more to hedge. Lucas: Exactly. When the VVIX is elevated, put options on SPY or on the S&P 500 ETFs are more expensive. That's actually good for selling put spreads, not buying them. But for hedging, buying a put spread — say, buying a 7450 put and selling a 7400 put — caps your cost while still protecting against a 50-point drop. Luna: And that's cheaper than buying an outright put at these vol levels? Lucas: Significantly. With VVIX at 104, the skew is steep. Outright puts are priced for a disaster. A put spread brings the cost down and still covers the most likely shock range. Luna: Makes sense. I've also seen some traders use VXX calls as a hedge here. What's your take? Lucas: VXX calls can work, but you have to be careful with decay. VXX tracks VIX futures, which roll down. So if the VIX doesn't spike quickly, the calls lose value. I prefer them only if you expect a sudden event — like an earnings miss from a big name that triggers a vol spike. Luna: Like Netflix maybe? They reported Friday, and we saw a move premarket. Lucas: Right. Netflix, Alphabet, SpaceX — there's a lot of single-stock vol this week. The VVIX spike suggests the market is bracing for something broader, not just one company. Luna: It's also worth noting that the S&P 500 is at 7458, down about 0.8 percent in five days. Not a huge drop, but the VIX is up almost ten percent. That negative correlation is classic risk-off. Lucas: And the Russell 2000 is actually up 0.3 percent over the same period. Small caps aren't panicking. So the fear is concentrated in large-cap tech, which dominates the S&P. Luna: That's a helpful nuance. So for a day trader, the VVIX 104 level is less about going to cash and more about adjusting position sizing and adding cheap hedges. Lucas: Right. One specific setup I've been using: buy the SPY 7450/7400 put spread expiring in two weeks. The cost is about 70 cents per spread, and the max profit is $4.30. That's a 6:1 risk-reward if the S&P drops below 7400. Luna: And if it doesn't drop, you lose 70 cents. That's a reasonable insurance premium. Lucas: Exactly. And if the VVIX stays elevated, you can roll it forward. The key is to not over-hedge. Keep it to 1-2 percent of your portfolio. Luna: Now, if our money conversations have helped you think about a trade differently or save a few bucks on hedging, that's the kind of thing we love to hear. Lucas: Yeah, and the way this stays ad-free is through listener support. If today was useful, you can toss a coffee our way at buy me a coffee dot com slash fexingo. Luna: No pressure. Just a way to keep the show going for people who find value in it. Lucas: Exactly. So back to the VVIX — let's also talk about what happens if it stays above 100 for a full week. Luna: Historically, that's been a precursor to a vol event within two to three weeks. July 2024, September 2025, both had VVIX sustained above 100 before a 2-3 percent S&P drop. Lucas: Right. So we're not saying it will happen this time, but the probabilities shift. That's what day traders can exploit — not predicting, but positioning for a higher probability of a move. Luna: And you can do that without taking big directional risk. Just adjust your gamma exposure. Lucas: Exactly. If you're long gamma — meaning you own options — a vol spike helps you. If you're short gamma, you get crushed. So with VVIX at 104, I'd suggest reducing short options positions. Luna: Especially short puts on high-beta names. That's where the tail risk is. Lucas: Right. And one more thing: look at the VVIX term structure. The front-month contract is at 104, but the second month is at 96. That's a contango, which is normal. But if the front goes above the second, that's backwardation — a panic signal. Luna: We're not there yet. But the divergence between VIX and VVIX is the early warning. Lucas: Exactly. So for tomorrow, I'll be watching if the VVIX holds 104 or breaks higher. If it holds, I'll add a small put spread. If it drops back below 100, I'll take it off. Luna: Simple, rules-based. That's the day trader edge. Lucas: Alright. Next time we'll talk about how the 'WarshGPT' Fed communication might affect vol during the FOMC week. Until then, keep your hedges tight and your size smart.