Learn
How to read a headline-driven vol spike
A vol spike on a headline is sellable only when the term structure stays normal, skew stays bid for puts, and the spot move is mean-reverting. It is not sellable when the curve inverts (front-month above back-month), when call skew rises, or when credit and rates confirm the headline. The headline is rarely the edge - the structure of the response is.
- Term structure - Front above back = real stress. Stay flat or buy.
- Skew direction - Put skew steeper = hedging demand. Call skew steeper = chasing.
- Cross-asset confirm - Credit and rates must agree for the move to be regime-changing.
- Spot path - V-shapes are sellable. Stair-steps are not.
The three conditions for "sellable"
- Term structure stays in contango. Front-month VIX below 3-month VIX. If the curve inverts, the market is pricing real stress, not headline noise.
- Skew is positioning-driven. Put skew steepens because everyone is hedging the same headline - that is unwind, not regime.
- Spot is mean-reverting intraday. V-shaped recoveries within hours suggest mechanical de-risking, not new information.
The three conditions for "do not sell"
- Front-month vol above back-month (curve inverts).
- Credit spreads widen materially (HY OAS up >25bp).
- Rates and FX confirm the headline (yields fall, USD bid).
What actually matters
Most "sellable" calls fail because the trader watched the headline, not the structure. Read surface, skew, and cross-asset together. If two of three confirm regime change, the spike is not noise.