I’m watching a volatility setup right now that I think is worth paying attention to.
Using Andrew Thrasher’s *Forecasting a Volatility Tsunami* framework, the idea is that volatility spikes are often preceded not simply by low VIX, but by compressed VIX and VVIX.
A low VIX reading alone is not enough. The stronger signal is when VIX has been trading in an unusually tight range, measured by its 20-day standard deviation.
The same idea can be applied to VVIX, which measures volatility-of-volatility.
The paper’s tested compression thresholds are roughly VIX 20d stdev ≤ 0.86
VVIX 20d stdev ≤ 3.16
Right now, we are seeing :
VIX stev at 0.79
https://preview.redd.it/t31buffbmo0h1.png?width=795&format=png&auto=webp&s=0641f2d1212256a52fdcb3a9542fd37a47226b1a
VVIX at 2.46
[VVIX st dev](https://preview.redd.it/gu0nm09cmo0h1.png?width=795&format=png&auto=webp&s=257146e647ef1a54d939e71744bd711e68c7e529)
That is not a guarantee that VIX explodes tomorrow, but it does suggest the market is moving from a calm-vol regime toward a more fragile volatility regime.
On top of thism a normal relaxed market usually has a healthy contango structure.
When that curve starts flattening like rn while VIX and VVIX dispersion are already compressed, I view it as a warning that the “easy short-vol” environment may be weakening.
[VIX Flattening](https://preview.redd.it/b0c2fnl3mo0h1.jpg?width=1078&format=pjpg&auto=webp&s=9679974113f0fc2e840c674bed56a9f17f8ccad2)