What is VVIX?
The VVIX (Cboe Volatility of Volatility Index) measures the expected volatility of the VIX (Volatility Index) over the next 30 days.
In simpler terms, while VIX measures how much the S&P 500 is expected to move, VVIX measures how much the VIX itself is expected to move.
Why VVIX Matters
- Tail Risk Indicator: High VVIX suggests uncertainty about volatility itself
- Options Pricing: Critical for volatility derivatives and VIX options
- Market Stability: Low VVIX indicates stable volatility expectations
- Crisis Predictor: Spikes often precede major market dislocations
VVIX Interpretation
- Below 80: Very stable volatility environment
- 80-100: Normal volatility conditions
- 100-110: Elevated uncertainty in volatility
- Above 110: CRITICAL - High volatility regime likely
- Above 150: Extreme stress - Major market events expected
The Critical 110 Level
The VVIX level of 110 has historically served as a critical threshold that separates normal market conditions from periods of elevated risk and instability.
- Regime Change Signal: Above 110, markets typically transition from stable to unstable volatility regimes
- Historical Significance: Major market crashes and corrections (2008, 2020 COVID, 2022 inflation crisis) all saw VVIX sustained above 110
- Options Markets: VIX options become more expensive and market makers widen spreads significantly
- Volatility Clustering: VVIX above 110 often precedes periods where VIX spikes become more frequent and severe
- Portfolio Impact: Traditional diversification breaks down as correlations shift to extremes
- Mean Reversion Risk: Strategies assuming mean reversion in volatility become extremely dangerous
When VVIX crosses above 110, it's a signal to reduce risk exposure, hedge portfolios, and prepare for potential large market moves.
Market Correlations
Understanding how VVIX correlates with other market indicators:
| Asset/Index |
Typical Correlation |
Interpretation |
| VIX |
+0.60 to +0.80 |
High positive correlation - VVIX rises when VIX rises |
| S&P 500 |
-0.50 to -0.70 |
Negative correlation - VVIX rises when stocks fall |
| VIX Futures (Contango) |
-0.40 to -0.60 |
Contango flattens when VVIX rises |
| Credit Spreads |
+0.50 to +0.70 |
Both rise during credit stress |
| USD Index |
+0.20 to +0.40 |
USD strengthens during risk-off periods |
Backwardation vs Contango
Contango (Normal Market)
VIX futures prices are higher than spot VIX
- Structure: Front month < 2nd month < 3rd month futures
- VVIX Level: Typically below 100
- Market Condition: Calm, stable markets with low uncertainty
- Strategy Implications: Volatility selling strategies profitable
- Decay: VIX futures roll down toward spot, creating negative carry
- Frequency: 70-80% of the time historically
Backwardation (Stressed Market)
VIX futures prices are lower than spot VIX
- Structure: Front month > 2nd month > 3rd month futures
- VVIX Level: Often above 110 during severe backwardation
- Market Condition: Fear, panic, or major uncertainty
- Strategy Implications: Volatility selling extremely risky
- Carry: Positive carry as futures roll up toward spot
- Frequency: 20-30% of the time, during crisis periods
The VVIX-VIX Structure Relationship
The relationship between VVIX and the VIX futures curve structure:
- Low VVIX + Contango: Ideal environment for volatility selling and stable markets
- Rising VVIX + Flattening Curve: Warning signal - market transitioning to uncertainty
- High VVIX + Backwardation: Dangerous environment - avoid volatility shorts, expect large moves
- Falling VVIX + Contango Restoration: Crisis ending - volatility stabilizing
Traders must monitor both VVIX levels AND VIX futures structure to properly assess market risk conditions.
VIX Futures Term Structure (/VX Contracts)
The VIX futures term structure shows the relationship between spot VIX and futures contracts expiring in different months.
Contango (upward sloping) is normal and indicates calm markets.
Backwardation (downward sloping) signals market stress and fear.
Loading VIX futures term structure...
Contango Implications
- VIX ETPs (XIV, SVXY): Benefit from negative roll yield
- Selling Volatility: Favorable environment for premium sellers
- Market Outlook: Investors expect volatility to decline
- Typical VVIX: Below 100, stable conditions
Backwardation Implications
- VIX ETPs (VXX, UVXY): Benefit from positive roll yield
- Selling Volatility: DANGEROUS - avoid short vol strategies
- Market Outlook: Investors expect volatility to stay elevated
- Typical VVIX: Above 110, crisis mode