Volatility of Volatility (Quant Lab)

• VOV (white line)
• Around 0 → Volatility fluctuates normally
• Upward spike → Volatility changes very rapidly
• Often occurs during periods of breakouts, collapses, liquidations, and sharp trends
• When it stays low downwards → Volatility is stable, the market is moving at its “usual pace” • Regime histogram (columns)
• +1 (reddish) → Volatility Expanding
• Risk is increasing, “storm mode”
• Trend burst, flash move, news, liquidation effect
• 0 (orange) → Neutral
• Volatility behavior is normal
• -1 (turquoise) → Volatility Contracting
• Volatility is decreasing, movements are becoming smaller
• This may be a period before a big move after a squeeze

Keep this in mind:
• Volatility Regime → “What is the volatility level?”
• Volatility of Volatility → “How much is that volatility changing?”

When VoV spikes:

“Not only is market movement increasing, but the structure of the movement is also deteriorating; risk mode has been activated.”

This is crucial for identifying crash/pump periods.