Yo Pit Crazies,

I had a volatility trade that should have worked. The VIX dropped. The futures curve, which tells you whether traders expect volatility to rise or fall over the next few months, flipped into a shape called contango, meaning near-term fear fell below longer-term fear. That’s usually a green light. I still couldn’t close the position for a profit.

After 37 years of trading options, I’ve messed up trades and bruised enough egos to know that when a trade should work and doesn’t, it’s not the market that’s broken. It’s my process. So I went back to a framework I learned over a decade ago, and it told me exactly what went wrong.

There are three things that matter when you trade volatility as a direction: the VIX futures curve, the VIX zone, and VIX direction itself. When all three move together, that’s your signal. When two move, it’s probably enough. When only one changes, that’s not a signal. That’s noise. Most traders can’t tell the difference, and it costs them money every month.

Where the Real Money Lives

I learned this framework from two brothers who were Option Pit clients about 12 years ago. They weren’t great at options, but they were excellent futures traders. Today they run a sizable fund. Their core insight was simple: zone money is made below 16 and above 20.

Think about what that means in plain terms. The VIX measures how much movement the market expects over the next 30 days. When it’s below 16, the market is calm, and strategies that profit from selling volatility, collecting small premiums on options that are unlikely to pay off, work consistently. When it’s above 20, the market is scared, and strategies that profit from buying volatility, owning options that pay off during big moves, start printing money.

Everything between 16 and 20 is no-man’s-land. Not calm enough to sell. Not scared enough to buy. That’s where traders bleed out waiting for a move that never comes.

Since the VIX was created in 1993, there have been exactly 68 trading days where it closed below 10, meaning the market expected almost no movement at all. Fifty-two of those happened in a single year, 2017. Before that, you have to go back to 2006 for single-digit readings. Before that, 1993. Three calm windows in over 30 years. They don’t happen often.

If the VIX is sitting in the middle, between 16 and 20, you’re stuck. One signal moving doesn’t change that.

One Dial Doesn’t Change the Temperature

Here’s where most people get confused. The short-term VIX drops a couple points, and the futures curve shifts into contango. That feels like a signal. But the zone didn’t change. The VIX is still sitting in the same range it was in last week.

Think of it like a thermostat with three dials. One dial moving doesn’t change the temperature in the room. You need the whole system to shift. The futures curve is the most sensitive of the three. It twitches at every headline. It almost never moves on its own in a meaningful way. Direction matters, but only from the last zone boundary. If VIX is up a point but hasn’t broken through a zone level, that’s the market changing its mood, not its mind.

The fiscal and interest rate backdrop matters here too. When the government runs deficits above five percent of GDP, when the Fed is navigating rate uncertainty, and when trade policy is unpredictable, you get a floor under volatility. Think of it like background noise in a room. You can’t hear a whisper when there’s construction outside. The macro environment is the construction, and it keeps volatility from ever getting truly quiet.

So what do you do? Wait for alignment. When only one signal changes, skip the volatility trade entirely and consider a directional equity play, something like a SPDR S&P 500 ETF Trust (SPY) put or call based on where you think the market is heading. When two signals change, it’s probably enough for a volatility position, but be selective. When all three move, get aggressive.

Not gonna lie, I wanted to close that position for a profit. I couldn’t. But that’s what the three-signal rule is for. It keeps you honest. It keeps you from mistaking noise for a real change. And after 37 years, I can tell you that patience with this framework has made me more money than any single trade ever has.

Good trading,

Andrew