While most traders focus on the VIX, sophisticated volatility traders watch VVIX—the volatility of volatility itself. This second-order indicator often provides earlier signals of market regime changes than VIX alone.
What is VVIX?
VVIX measures the expected volatility of the VIX index over the next 30 days. Calculated from VIX options prices, it essentially tells us how uncertain the market is about future volatility. Normal VVIX ranges from 80-120, but can spike above 200 during extreme uncertainty.
Think of it this way: VIX measures fear, VVIX measures confusion about that fear. When VVIX is elevated, markets are unsure whether current volatility will persist or reverse. This uncertainty itself becomes tradeable information.
VVIX as a Market Timing Tool
VVIX extremes often mark volatility regime turning points. When VVIX exceeds 140, it signals extreme uncertainty that typically resolves within days. Historical data shows 82% of VVIX readings above 140 coincide with short-term VIX peaks.
Conversely, VVIX below 80 indicates complacency about volatility—markets expect smooth sailing ahead. These periods often precede volatility expansions, as low VVIX reflects underpriced tail risk.
The VVIX/VIX Ratio
The ratio of VVIX to VIX provides valuable context. Normal ratios range from 4-6 (VVIX at 100, VIX at 20 gives ratio of 5). Extreme ratios signal opportunity: Above 7 suggests VIX options are overpriced relative to realized volatility. Below 3 indicates VIX options are cheap, often preceding volatility spikes.
Trading VVIX Signals
You can't trade VVIX directly, but its signals inform VIX strategies. When VVIX spikes above 140 with VIX above 30, consider selling VIX calls or buying put spreads. The extreme uncertainty typically resolves toward mean reversion.
When VVIX drops below 80 with VIX below 15, accumulate cheap VIX calls. Low VVIX indicates options are underpricing potential volatility expansion. This combination has preceded every major volatility spike since 2018.
VVIX During Crisis Periods
VVIX behavior during crises reveals market psychology. In March 2020, VVIX hit 240—the highest reading ever. This extreme indicated complete uncertainty about pandemic impacts. Notably, VVIX peaked before VIX, providing an early signal that peak fear was approaching.
During the 2008 financial crisis, VVIX remained elevated for months, correctly signaling that volatility would persist. This contrasts with shorter spikes where VVIX quickly normalizes, indicating temporary disruptions.
Common VVIX Misconceptions
Many believe high VVIX always means buy volatility. Wrong. Extreme VVIX often marks exhaustion points where volatility sellers emerge. The key is combining VVIX with VIX levels and term structure for complete context.
Another mistake: ignoring VVIX during calm markets. Low VVIX during low VIX periods signals dangerous complacency. These are precisely when tail hedges are cheapest and most needed.
"VVIX is the market's confession of confusion. When it spikes, the market admits it has no idea what comes next. That admission itself often marks the turning point."
Master VVIX analysis, and you'll spot volatility regime changes before they appear in VIX. This second-derivative thinking separates professional volatility traders from amateurs chasing yesterday's moves.