Macro Risk Trinity [OAS|VIX|MOVE] — Indicator by Robinhodl21

The Obsolescence of Single-Metric Risk Models
For decades, the CBOE VIX served as the undisputed “fear gauge” of Wall Street. However, the modern financial market structure has evolved to a point where relying on a single univariate indicator is not only insufficient but potentially dangerous. Two structural shifts have fundamentally altered the predictive power of the VIX:

• []The 0DTE Blind Spot: The VIX calculates implied volatility based on options expiring in 23 to 37 days. Today, massive institutional hedging flows occur intraday via 0DTE (Zero Days to Expiration) options. This creates a “Gamma Suppression” effect: Market makers hedging these short-term flows often dampen realized volatility intraday, effectively bypassing the VIX calculation window. This leads to a suppression of the index, masking risk even during fragile market phases (Bandi et al., 2023).
  []Goodhart’s Law: “When a measure becomes a target, it ceases to be a good measure.” Because algorithmic volatility targeting strategies and risk-parity funds use the VIX as a mechanical trigger to deleverage, market participants have developed an incentive to suppress implied volatility via short-volatility strategies to prevent triggering cascading margin calls.

The Theoretical Framework: Why this Model Works
To accurately navigate this complex environment, the Macro Risk Trinity moves beyond simple price action. It employs a multivariate analysis of the financial system’s three core pillars: Rates, Credit, and Equity. The logic is derived from three specific areas of financial research:

1. The Origin of Shock: Volatility Spillover Theory
Macroeconomic shocks typically do not start in the stock market; they originate in the US Treasury market. The MOVE Index acts as the “VIX for Bonds.” Research by Choi et al. (2022) demonstrates that bond variance risk premiums are a leading indicator for equity distress. Since the “Risk-Free Rate” is the denominator in every Discounted Cash Flow (DCF) model, instability here forces a repricing of all risk assets downstream.

2. The Foundation: Structural Credit Models (Merton)
While stock prices are often driven by sentiment and liquidity, corporate bond spreads (High Yield Option Adjusted Spread) are driven by balance sheets and math. Based on the seminal Merton Model (1974), equity can be viewed as a call option on a firm’s assets, while debt carries a short put option risk.
The Thesis: If the VIX (Equity) is low, but OAS (Credit) is widening, a divergence occurs. Mathematically, credit spreads cannot widen indefinitely without eventually pulling equity valuations down. This indicator identifies that specific divergence.

3. The Fragility: Knightian Uncertainty
By monitoring the VVIX (Volatility of Volatility), we detect demand for tail-risk protection. When the VIX is suppressed (low) but VVIX is rising, it signals that “Smart Money” is buying Out-of-the-Money crash protection despite calm waters. This is often a precursor to liquidity events where the VIX “uncoils” violently.

The Solution: Dual Z-Score Normalization
You cannot simply overlay the VIX (an index) with a Credit Spread (a percentage). To make them comparable, this script utilizes a Dual Z-Score Engine.
It calculates the statistical deviation from both a Fast (Quarterly/63-day) and a Slow (Yearly/252-day) mean. This standardizes all data into a single “Stress Unit,” allowing us to see exactly when Credit Stress exceeds Equity Fear.

Decoding the Macro Regimes
The indicator aggregates these data streams to visualize the current market regime via the chart’s background color:

• []Systemic Shock (Red Background): The critical convergence. Both Credit Spreads (Solvency) and Equity Volatility (Fear) spike simultaneously beyond extreme statistical thresholds (> 2.0 Sigma). Correlations approach 1, and liquidity evaporates.
  []Macro Risk / Rates Shock (Yellow Background): Equities are calm, but the MOVE Index is panicking. A warning signal from the plumbing of the financial system regarding inflation or Fed policy errors.
  []Credit Stress (Maroon Background): The “Silent Killer.” The VIX is low (often suppressed), but Credit Spreads (OAS) are widening. This signals a deterioration of the real economy (“Slow Bleed”) while the stock market is in denial.
  []Structural Fragility (Purple Background): VIX is low, but VVIX is rising. A sign of excessive leverage and “Volmageddon” risk (Gamma Squeeze).
  []Bull Cycle (Green Background): The “Buy the Dip” signal. Even if prices fall and VIX spikes, the background remains green as long as Corporate Credit (OAS) remains stable. This indicates the sell-off is technical, not fundamental.

Technical Specifications

• []Engineered for the Daily (1D) timeframe.
  []Institutional Lookbacks: 63 Days (Quarterly) / 252 Days (Yearly).
• OAS Lag Buffer: Includes logic to handle the ~24h reporting delay of Federal Reserve (FRED) data to prevent signal flickering.

Scientific Bibliography
This tool is not based on heuristics but on peer-reviewed financial literature:

• []Bandi, F. M., et al. (2023). The spectral properties of 0DTE options and their impact on VIX. Journal of Econometrics.
  []Choi, J., Mueller, P., & Vedolin, A. (2022). Bond Variance Risk Premiums. Review of Finance.
  []Cremers, M., et al. (2008). Explaining the Level and Time-Variation of Credit Spreads. Review of Financial Studies.
  []Griffin, J. M., & Shams, A. (2018). Manipulation in the VIX? The Review of Financial Studies.
• Merton, R. C. (1974). On the Pricing of Corporate Debt. The Journal of Finance.

Author’s Note: The Reality of Markets & Overfitting

While this tool is built on robust academic principles, we must address the reality of quantitative modeling: There is no Holy Grail.

This indicator relies on Z-Scores, which assume that future volatility distributions will somewhat resemble the past (Mean Reversion). In data science, calibrating lookback periods (like 63/252 days) always carries a risk of Overfitting to past cycles.

Markets are adaptive systems. If the correlation between Credit Spreads and Equity Volatility breaks (e.g., due to massive fiscal intervention/QE or new derivative products), signals may temporarily diverge. This tool is designed to identify stress, not to predict the future price. It will rhyme with the market, but it will not always repeat it perfectly.

Use it as a compass to gauge the environment, not as an autopilot for your trading.

Use responsibly and always manage your risk.

Disclaimer: This indicator relies on external data feeds from FRED and CBOE. Data availability is subject to TradingView providers.