What is the volatility trigger [VFLIP]? Its the level UNDER which dealers go from long gamma to short gamma. When dealers are long gamma they are hedging INTO market direction, and thereby suppressing volatility. When dealers are short gamma they are hedging WITH market direction and exacerbating volatility. There is often market commentary about a “gamma trap” which can be triggered if markets fall below the volatility trigger.
The volatility trigger or VFLIP indicator can change on a daily basis, but has its largest movements particularly after a large S&P 500 expiration (the 3rd Friday of every month.)
The chart below depicts an example to how the volatility indicator works. You can see in the chart below there is low volatility leading up to the break of the volatility flip indicator on 7/31. That unleashed a high volatility market, making large daily moves both up and down. Its important to note that the VFLIP indicator was well below prevailing market levels up until 7/31. After 7/31 the VFLIP indicator was around the 2935 level.