Volatility Exhales as Stocks Rebound (02/02/2026)

Monday’s tape had the feel of a crowded theater finding its seats after a weekend fire drill. Stocks rose, crude fell, and the market’s most expensive insurance policies got cheaper in a hurry. The result was a clean retreat in implied volatility, with both the VIX and VVIX sliding as investors leaned away from near-term hedges and back toward carry.

Table of Contents

Outline: Why volatility products moved

Risk-on close pulled demand out of index protection: A higher S&P 500 and Nasdaq eased near-term fear premiums embedded in SPX options, pushing the VIX lower.
Vol-of-vol cooled alongside spot vol: VVIX fell with VIX, a sign that traders paid less for convexity in VIX options and less for “surprise risk” around future volatility.
Geopolitical premium faded in energy: Crude’s sharp drop helped take the edge off tail-risk hedging tied to Middle East headlines and inflation pass-through worries.
Term structure stayed in contango: An upward-sloping VIX futures curve reinforced the idea of calmer near-term conditions and kept headwinds in place for long-vol ETPs that roll front-month futures.
Earnings dispersion remained high, but index-level stress eased: Big moves under the surface can fuel single-stock volatility, yet the index tape improved enough to compress broad hedging demand.

Concise summary

The VIX fell to the mid-16s and VVIX slipped toward the low-100s as equities advanced and crude oil retreated. With the VIX futures curve in contango, the market priced near-term calm while keeping a higher volatility premium further out, a common posture during rebounds that follow choppy, headline-driven weeks.

Looking Back: What moved volatility on Feb. 2

VIX dropped as the rebound held into the close. The S&P 500 finished at 6,976.44 (+0.53%), and the Nasdaq Composite closed at 23,592.11 (+0.56%). With index levels firming, the market needed fewer immediate hedges, and implied volatility followed suit. The VIX closed at 16.34, down 6.31%.
VVIX slid too, signaling cheaper volatility “insurance on the insurance.” When VVIX falls alongside VIX, it often reflects less urgency to own upside in volatility itself. The CBOE VVIX Index closed at 103.58, down 4.25%, consistent with a market that felt less vulnerable to a sudden volatility shock.
Oil’s pullback drained a layer of event premium. WTI crude traded down near $62, roughly a 5% slide on the day, as the market re-priced geopolitical and supply-risk probabilities. Lower crude tends to temper inflation anxiety and reduce the urgency for short-dated, crash-sensitive hedges that can lift the VIX.
Contango stayed in charge, keeping long-vol carry painful. The VIX futures curve remained upward sloping, with front-month futures below the second month (a classic contango posture). In that setup, products that roll short-dated VIX futures typically face a negative roll yield, while sellers of volatility enjoy carry, until the next volatility spike changes the math.

Sources: Looking Back

Looking Forward: What could reprice volatility next

Early-month macro gauntlet (PMIs, ISM, jobs data) can move the front end of vol. Traders tend to re-bid short-dated SPX options when the calendar stacks high-signal releases, especially when inflation and labor data can reshape the rate path. Any surprise that pushes yields higher or revives inflation fears can lift implied volatility quickly.
Earnings season: single-stock fireworks can leak into index volatility. Mega-cap results and guidance, particularly around AI spending, can widen dispersion. Dispersion sometimes suppresses index volatility, but abrupt sector rotations or correlated selloffs can flip that relationship.
Geopolitical headlines remain a live wire. Middle East developments can re-inflate crude and shipping risk premia. If energy rallies sharply, volatility markets often respond by lifting near-dated protection first, which can steepen the front of the VIX curve or briefly pull it toward backwardation.
Fed sensitivity is still high even between meetings. With policy on hold in the recent decision, speeches, interviews, and inflation-sensitive prints can change how much investors are willing to pay for protection into the next policy waypoint.

Tony

I have been trading options since 2010 and have been testing and experimenting with various trading styles. Fundamental Analysis based, Technical Analysis based, Trend Following, Day Trading, Swing Trading, etc.

My primary option trading strategies incorporate volatility and I am constantly experimenting with various trading strategies to improve my PNL.

I hold two Master’s degrees (MSc and MBA) with career experience as a cancer research scientist and a digital marketer.