sport football: Why Volatility is the Market’s Black Hole

Don Kaufman here.

Three weeks ago, the market felt like it was teetering on the edge of a cliff. The VIX hit 60, the VVIX soared to 189, and traders were throwing panic hedges at anything that moved.

Fast forward to today, and it's a completely different story: the VIX is now under 24, the VVIX has collapsed to 102, and everyone's acting like the storm has passed.

But here's the kicker: has it really?

The market loves to lull traders into a false sense of security. Just when you think the worst is over, volatility has a nasty habit of sneaking back up and smacking you in the face.

So, let's talk about what's really going on, what this collapse in volatility means, and how you should be positioning yourself for what's next.

From Panic to Calm: What's Driving the Drop in Volatility?

To understand what's happening, let's rewind to three weeks ago. The market was gripped by fear, and for good reason:

The Dow was sinking like a stone.
Trade deal uncertainties were dominating headlines.
The VVIX—aka the "volatility of volatility"—exploded as traders rushed to hedge their portfolios.

Now?

The Dow just surged 400 points just a few minutes ago, hitting session highs, and there's optimism in the air.

The White House is hinting at a major trade deal being finalized. Suddenly, the fear that sent volatility skyrocketing has evaporated—at least for now.

But here's a pro tip: the collapse in volatility doesn't mean the market is safe.

It just means the emotional panic has subsided. The real question is whether the market can sustain this calm or if we're setting up for another wave of turbulence.

Why Volatility is Like a Black Hole (and Why It's Shrinking)

Volatility is a lot like a black hole: when it's expanding, it sucks in everything around it—stocks, traders' confidence, and your P&L. But when volatility contracts, it's like the black hole is shrinking, releasing the pressure and letting traders breathe again.

So why is the black hole shrinking now?

Hedging Activity is Dying Down: When the VVIX drops from 189 to 102, it's a sign that traders aren't buying as many VIX options. This means the fear of big, sudden moves is fading.
Stabilizing Headlines: The market thrives on narratives, and the current one—"Trade deal optimism"—is giving traders a reason to step back from the panic button.
Earnings and Big Tech: With major earnings reports coming in (Meta, Microsoft, Apple, and Amazon), the focus has shifted from fear to fundamentals.

But here's the thing: just because the black hole is shrinking doesn't mean it's gone.

Volatility has a way of returning when you least expect it, especially during uncertain times like these.

What Happens When the Black Hole Strikes Back?

Volatility doesn't just disappear—it hides. And when the market gets too complacent, that's when it's most dangerous.

Take the current environment:

Stocks are rallying, but major risks remain. General Motors is reassessing guidance and suspending share buybacks. Amazon just backtracked on a controversial tariff surcharge plan. Investors may have stopped panicking, but underneath the surface, uncertainty is still brewing.
Wolfe Research just flagged stagflation fears, which could depress equities further.

Here's the reality: when volatility drops this fast, it can create a false sense of security.

That's when complacency sets in, and traders stop hedging. But if a new catalyst—like disappointing earnings or unexpected trade news—hits, volatility can spike right back up.

How to Trade in a Low-Volatility Market

So, what's a trader to do when the black hole of volatility starts to shrink? Here's how you can stay ahead of the game:

1. Don't Assume the Calm Will Last

The VVIX at 102 and VIX under 24 might feel like a green light, but it's not. Low volatility can flip in an instant, especially with big earnings reports and trade deal uncertainties still in play. Keep your guard up.

2. Use the Drop in Volatility to Hedge Cheaply

When volatility contracts, options get cheaper. This is the perfect time to add short-duration hedges to your portfolio. For example:

Buy put spreads on the S&P 500 with an expiration 20-30 days out.
Focus on strikes slightly out of the money to keep costs low.

Hedging now ensures you're prepared if volatility spikes again.

3. Look for Momentum Opportunities

With volatility down, certain stocks and sectors are starting to stabilize. Look for sectors like consumer staples or energy that are holding up well. These could become leaders in the next leg higher.

4. Watch for a Volatility Spike as an Entry Point

If the VIX and VVIX spike again, that's your signal to start looking for long-term opportunities. Remember: the best trades often come out of the most volatile environments.

The Market's Calm Before the Storm?

Here's the bottom line: the collapse in volatility is a sign that the market has stabilized—for now. But don't let the shrinking black hole fool you into thinking the danger is gone.

The VVIX at 102 is still elevated compared to historical norms, and the risks that sent it to 189 just three weeks ago haven't disappeared. They've just been overshadowed by temporary optimism.

So stay smart. Use this calm to position yourself for what's next. And remember: whether the black hole grows or shrinks, there's always opportunity for traders who know where to look.

Don't Get Sucked In

Volatility might feel like it's disappearing, but it's lurking just beneath the surface. The next few weeks will be critical as earnings season heats up and trade deal details emerge. This is when smart traders separate themselves from the herd.

Here's the deal: if you stay disciplined, hedge wisely, and avoid getting complacent, you'll be ready to navigate whatever this market throws at you.

And when the black hole of volatility strikes back?

You'll be the one profiting while everyone else panics.

That's why I've put together my 4-Week Volatility Mentorship starting this Thursday, May 1st.

In this intensive program, I'm going to break down exactly how I:

Construct volatility spreads that work when markets seem to be spiraling out of control.
Navigate volatility futures without getting caught in the day trader trap.
Use the VIX not just as a fear gauge, but as a powerful trading tool for both profit and portfolio protection.

Stop Fearing Volatility – Start Profiting From It

Listen, the marketplace is moving. These expected moves aren't showing signs of calming down anytime soon.

You've got a choice to make: continue to get whipsawed by this two-sided market OR learn how to position yourself to turn this volatility into consistent profits.

I've been trading professionally for years, turning market chaos into opportunity time and time again.

Now, I'm laying out my exact blueprint for how you can do the same. No fluff, no BS—just the battle-tested strategies I use every day.

The mentorship starts Thursday. If you're tired of getting your face ripped off by these wild market swings, if you want to learn how to stay calm and collected while banking profits that others are missing, then I want to see you there.

Click here to join now

Special Note for TheoTrade Subscribers

If you're already a TheoTrade subscriber, you might have credits available that you can use toward this mentorship. Unsure if you have credits or how many you have left?

Call 623-244-5657 now to find out and apply them to secure your spot in the program.

Don't let those credits go to waste—use them to turn volatility into consistent profits!

Don't waste any more time or money trying to figure this out on your own. This market isn't waiting for anyone.

Join my 4-Week Volatility Mentorship, and let's turn this market mayhem into cold, hard cash.

To your success,
Don Kaufman

P.S. If you're a current TheoTrade subscriber, you may have credits available. Make sure to call our team at 623-244-5657 and they'll walk you through all your options.