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VIX VXV Volatility Spikes and Fear Indicators SPY

Spikes in fear VIX VXV indicator accelerate when traders position for a market moving event.

Events are usually news driven. They can also be macro signals that create an appetite for options (puts). These events might also be seen as a spike in the USD, gold, crude or bond yields, among other assets. Election events, trade war fears, political turmoil or civil strife, that are viewed as market moving is another example.

Investors buy insurance, sending volatility indicators like VIX on a path to extreme levels. These extremes in fear usually last for a day, a week, sometimes longer.

VIX VXV – Fade the Fear

Monday started with trade war fears. The media bombarded investors and anyone that would listen. They were relentless, which created a mini-panic of sorts. Traders stampeded to the options market to buy puts. These puts were insurance for an extreme move in stock market indices and individual stocks.

Short-term the trade was bearish. However, these extremes typically revert back to mean.

The upper panel illustrates the ratio between near-term or front month (July) options versus volatility futures beyond September. When the front month skews higher we get spikes above 1.00.


Fade the Fear VIX VXV


Monday the spike sent VIX VXV to 1.11 (+/-). By the close the black line had retracted like a stretched rubber band back towards the white area, closing at 0.98. It’s this confirmation or reversion that we use as confirmation to go long the stock market. We can also trade in anticipation of this mean reversion.

Futures are higher.

Additionally, we look for a bounce in oversold stocks near support.

Fade the Fear – View Spikes in VIX VXV as an Opportunity

Now that VIX VXV is fading from Monday’s extreme levels, we’ll look for continuation. Bulls need to step up to the plate. If we see institutions picking up shares, we’ll then be able to go to the next step. We’ll consider adding to positions, in addition to selling premium as we wait for further developments.

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Happy Trading,



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