Latest / The Day Trading Podcast with Fexingo: Active Trading, Charts, and Short-Term Market Strategy / How Day Traders Read the VIX 20 Spike After the China Tech Ban
Transcript
- Lucas: Alright, the VIX opened this morning at 20.08, up 8 percent over the last five days. That's the highest we've seen since the early-June Fed panic, and the catalyst is pretty clear: China's threat to retaliate against the U.S. humanoid robot ban. Luna: So we're looking at a geopolitical shock hitting the tech sector specifically. The Nasdaq is down almost 3 percent over the same period, which is worse than the broader market. Lucas: Exactly. And when you get a concentrated selloff like that, the VIX tends to spike faster because options market makers start hedging the big-cap tech names. The interesting thing is that the VVIX — the volatility of the VIX — is up to 109.47. That's 7 percent higher week-over-week. Luna: Right, so the VIX is high, but the VVIX is telling us that the fear itself is also volatile. That's usually a sign that the market hasn't priced in a clear resolution yet. Lucas: Bingo. In my experience, when the VVIX is above 100 and still climbing, you get these sharp intraday reversals. Yesterday we saw the S&P 500 rally 1.2 percent off its morning low before fading into the close. That's a day trader's bread and butter — if you can read the tape. Luna: So what's the specific setup you're watching today? I know you love using the vvix to vix ratio for position sizing. Lucas: I do, but I want to be careful because the ratio is around 5.45 right now — that's elevated but not extreme. Above 6 is when I really shrink my share size. At this level, I'm looking for mean reversion trades on the Nasdaq 100 futures. If we get a VIX intraday spike above 21, that's often a scalping opportunity to the downside, and vice versa if it drops below 19.5. Luna: And you're using the VVIX to confirm the quality of that signal? If the VVIX is still rising, the reversal might not stick. Lucas: Yeah. If the VVIX is accelerating — say up another 5 points intraday — then I'd rather be selling rallies than buying dips. But if the VVIX starts to roll over while the VIX is still elevated, that's a strong sign that the worst of the fear is behind us, and we can look for a bounce. Luna: That makes sense. And I guess the headline risk here is real — the humanoid robot ban is just one piece of a bigger decoupling story. Lucas: Exactly. And if today was actually useful to you, the way these stay ad-free is listener support — buy me a coffee dot com slash fexingo. It's a simple way to keep the show focused on the data, not the ads. Luna: Yeah, I love that it's just listeners who find value chipping in a few bucks. No sponsors, no interruptions. Lucas: So back to the VVIX. At 109, that's about the 70th percentile over the last year. Not a panic level like 150, but definitely a level where day traders should tighten their stops and use smaller size. I'm capping my risk at 0.5 percent of account per trade today. Luna: And what about the broader breadth? The Nasdaq may be down, but the Dow is only off 0.2 percent. That divergence itself is a signal. Lucas: It is. When the Dow is holding up while tech gets crushed, it tells you that money is rotating into defensives and value. That's actually a healthy correction — not a systemic crash. So I'm not shorting just because the VIX is high. I'm looking for relative strength in sectors like utilities and healthcare. Luna: Have you seen any specific names that are bucking the trend? I noticed some of the robotics suppliers held up well yesterday. Lucas: Yeah, a couple of the component makers actually rallied because the ban might push more supply chain domestically. But for day trading, I'd rather trade the index futures or options on the QQQ than get into single stock names during a headline-driven event. Liquidity can dry up quickly. Luna: Good point. One last thing: the VIX term structure — are we in contango or backwardation right now? Lucas: We're still in contango, but the front-month is only 0.3 points below the second month. That's a pretty flat curve, which tells you that the market expects elevated vol to persist for at least a few weeks. That's not a great environment for long-vega strategies like buying straddles. Luna: So you'd rather sell premium in that setup? Like iron condors on SPX? Lucas: Conditionally. If the VIX stays around 20 and doesn't break above 21, selling puts at the 1 standard deviation level can be profitable. But with the VVIX high, the tails are fat. So I'm using wider wings and smaller size. Luna: That's a disciplined approach. I think the key takeaway for listeners is: know the VIX and VVIX levels, size accordingly, and don't overreact to one headline. Lucas: Exactly. The Dow has dropped 1,000 points several times in history, and each time the market eventually found a bottom. This could be one of those moments, but as day traders, we react to the tape, not the fear.