Top Traders Unplugged UGO05: Volatility’s Blueprint: How Markets Really Move ft. Mandy Xu & Ed Tom
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Aug 12, 2025 Mandy Xu, from the CBOE Market Intelligence team, along with Ed Tom, dives into the evolution of the options market, tracing its journey from 1848 to today. They discuss the groundbreaking VIX decomposition tool, which clarifies market volatility dynamics. Key topics include how positioning impacts risk perception, the complexities of zero-day options, and why volatility can rise amidst market rallies. The conversation reveals valuable insights into trading strategies and the forces that shape monetary behavior.
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VIX Is A Measure Of Uncertainty, Not Just Fear
- The VIX measures expected 30-day S&P volatility, which reflects uncertainty both up and down.
- Treating VIX only as a 'fear gauge' misses upside and surface-shift drivers of volatility.
How The VIX Decomposition Works
- Cboe decomposes VIX into an expected-move slide plus shifts in the volatility surface and skew/convexity across strikes.
- That breakdown separates priced-in ATM moves from additional bids for optionality and tail convexity.
Breaking Vol Surface Into Four Parts
- The decomposition isolates expected move, skew (near‑ATM puts/calls), and convexity (deep OTM options).
- These components reveal whether VIX moves come from ATM sliding, skew change, or tail convexity shifts.