VVIX is the most important volatility indicator

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VVIX is the most important volatility indicator

 

VVIX is the most important indicator when it comes to trading stock options.  If one is new to options, I see a lot of chat room boards and many folks have similar questions.  Is this indicator important or is that indicator important like MACD, RSI, Bollinger Bands and on and on.  To be honest I have no idea about any of those.  As a floor trader I just looked at the tape and bought them when they went up and sold them when they went down and was unconcerned where things were until the end of the day.  I would say to myself wow, that was a big market move by  days end.

VVIX used to be the noise level on the floor of the Cboe

 

I did not need VVIX back then because I was, well, VVIX.  The nasty trolling tweets are coming with a statement like that.  In the old days liquidity providers moved things manually and a change in volatility was a visceral thing.  We could feel the vol getting crushed.  I remember summer days on the CBOE and the sound of air coming out of options was deafeningly quiet.  “This is going to be a bad day, I would say to myself ,”as my 20000 Vega rotted away.  The opposite was true when the volatility picked up.  On the CBOE you would hear it first in the OEX as traders would scramble to buy every book they could get their hands on.

 

Charts by pro.livevol.com

Big, Electronic Liquidity was a game changer

 

The biggest difference between then and now is the advent of posted liquidity.  At any one time there could be 200k calls offered in VIX on the screen.  That is a lot of VIX futures.  All the posted liquidity means that volatility tends to move in chunks since the LPs have to adjust once they are swept. VVIX measures the change in volatility of the options in VIX.  It literally is the VIX of VIX.  It also is the decibel level in the SPX now.  By watching demand for vol of vol, smart traders can get an idea if the wind is going to blow harder.  Right now VVIX is approaching 6 month lows so summer time is hitting the CBOE early.  If VVIX makes new lows, 2800 SPX will be well in the review mirror.

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Disclosure- Positions in SPX, VIX

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