Volatility of Volatility (VVIX)¶
OVERVIEW¶
Volatility of volatility, tracked by the CBOE Volatility of Volatility Index (VVIX), measures the expected 30-day volatility of the VIX index. It is derived from the prices of VIX options using a variance swap formula. While the VIX measures the implied volatility of the S&P 500 (SPX), the VVIX measures the implied volatility of the VIX itself.
| Indicator | Measures | Derived From |
|---|---|---|
| VIX | Implied volatility of the S&P 500 | SPX option prices |
| VVIX | Implied volatility of the VIX | VIX option prices |
Note
VVIX is derived from VIX option prices using the same variance swap formula used to calculate the VIX itself.
| VVIX Level | Market Signal |
|---|---|
| High | Violent swings in volatility expected; market stress; aggressive hedging |
| Low | Stable volatility expectations; quiet market regime |
HOW IT WORKS¶
VVIX is calculated using the same variance swap methodology used for the VIX, but applied to VIX option prices instead of SPX options. The formula uses out-of-the-money VIX calls and puts across a wide range of strikes.
Variance Swap Formula:
| Variable | Definition |
|---|---|
T |
Time to expiration |
K |
Strike price of the VIX option |
Mid(K) |
Mid-price of the VIX option at strike K |
R |
Risk-free rate |
The VVIX aggregates two near-term expirations to produce a constant 30-day expected volatility of the VIX.
Note
Because the VIX is a mean-reverting, negatively skewed asset, VIX options exhibit extreme skew — calls are heavily bid up compared to puts. The VVIX captures this skew and the rapid repricing of volatility expectations.
HOW TO USE¶
Sizing VIX Option Positions
Volatility traders and option market makers use VVIX to size their VIX option exposure. When VVIX is low, VIX options are cheap, creating an asymmetric opportunity to buy VIX calls as a portfolio hedge.
Identifying Regime Shifts
Macro traders monitor VVIX to detect structural shifts in market conditions.
Tip
A sudden spike in VVIX without a corresponding spike in the VIX often precedes major market dislocations. This signals that institutional desks are quietly accumulating volatility protection before a move becomes visible in the VIX.
Reading Tail Risk
Use VVIX to gauge tail risk within the volatility market itself — not in the equity market directly.
Worked Example — August 5, 2024
A global carry trade unwind triggered a massive selloff. The VIX spiked from 18 to over 65 intraday. The VVIX surged from 90 to over 170.
| Event | VIX Level | VVIX Level |
|---|---|---|
| Before selloff | ~18 | ~90 |
| Intraday peak | 65+ | 170+ |
A trader long a VIX 25 call purchased when VIX was at 18 paid a low premium. When VIX exploded to 65, that call traded deeply in-the-money. The VVIX surge signaled that market makers were aggressively repricing the risk of further volatility shocks, driving up the premiums of all VIX derivatives.
LIMITATIONS¶
Note
VVIX does not predict the direction of the stock market. It predicts the behavior of the VIX.
| Misconception | Reality |
|---|---|
| High VVIX means the market will crash | High VVIX means the VIX is expected to move violently in either direction |
| A VIX spike always follows a VVIX spike | The VIX can drop sharply if a panic subsides quickly — this is also a high-VVIX outcome |
| Historical VVIX levels are directly comparable | VVIX carries a structural premium from persistent hedging demand, making raw comparisons misleading without context |
Tip
Always contextualize VVIX readings against the current VIX level, term structure, and broader market regime before drawing conclusions.