What Is the VIX?
The VIX — officially the CBOE Volatility Index — is the most watched volatility gauge in financial markets. Created by the Chicago Board Options Exchange in 1993, it measures the market's expectation of S&P 500 price swings over the next 30 calendar days.
Traders call it the "fear gauge." I prefer calling it the options trader's weather report.
Understanding the VIX isn't optional if you trade options seriously. It is the single most important external variable in determining whether conditions are favorable for premium-selling strategies like iron condors.
How the VIX Is Calculated
The VIX is derived from the prices of SPX options across a range of strike prices. When options traders bid up prices — paying more for protection — implied volatility rises and the VIX goes up.
Converting VIX to expected daily moves:
Expected daily move = (VIX ÷ √252)
- VIX 15 → ~0.94% expected daily move
- VIX 20 → ~1.26% expected daily move
- VIX 30 → ~1.89% expected daily move
At VIX 30, the market prices in moves nearly double what it prices at VIX 15. Critical for iron condor strike selection.
The VIX Regime Map
Below 12 — Extreme Complacency
Very calm. Options cheap. Iron condors have high probability of profit. Risk: sudden spike.
12-15 — Optimal Iron Condor Zone
The sweet spot. Reasonable credits, market not pricing in imminent large moves. VIXShield targets this range.
15-20 — Caution Zone
Elevated volatility. Condors need wider strikes, reduced sizing, active management.
20-30 — High Alert
VIXShield signal system issues HOLD in this range.
Above 30 — Crisis Territory
Historical spikes: 2008 (VIX 80+), COVID March 2020 (VIX 85). Selling premium here is catching a falling knife.
VIX Term Structure: Contango vs. Backwardation
Contango (Normal): Longer-dated VIX futures trade higher than near-term. The normal state. Favors premium sellers.
Backwardation (Stress): Near-term VIX trades higher than longer-dated futures. Signals acute fear. Red flag for iron condor traders — often precedes continued volatility.
The VIX 5-Day Moving Average
The 5DMA smooths intraday VIX fluctuations and shows the underlying trend.
Key rules:
- VIX spot < 15 AND VIX 5DMA < 15: Strong PLACE signal
- VIX spot < 15 BUT 5DMA > 15: Caution — wait one more day or reduce size
- VIX rising above 5DMA: Market stress increasing
- VIX falling below 5DMA: Calming down — potential opportunity emerging
Why VIX Spikes Are Asymmetric
VIX can spike 50% in a single day when markets panic — as happened during COVID, the 2018 "Volmageddon" event, and other market dislocations. But VIX declines are typically gradual.
Practical implications:
- A single large VIX spike can destroy a month's worth of accumulated premium
- Entering condors just because VIX dropped "a little" from a recent spike is dangerous
- Patience is required — wait for the 5DMA to confirm calm has settled
The VIXShield Real-Time Process
At 3pm CST each weekday, our signal algorithm:
- Records SPX close and VIX close
- Calculates VIX 5DMA
- Calculates EDR (ATR/SPX)
- Applies both entry gates
- Issues PLACE or HOLD by 3:05pm CST
Three Rules for VIX-Informed Trading
- Below 15 = Green light. Both spot and 5DMA below 15 is the go-zone for iron condors.
- 15-20 = Yellow light. Smaller size, wider strikes, proceed with caution.
- Above 20 = Red light. Cash is the position. No exceptions.
The VIXShield system embodies this discipline. Our daily signals filter dangerous days so you deploy capital only when conditions are genuinely favorable.