Vix and how it's misinterpreted

[VIXTrader]

Here's the funny thing. Plot VIX on a chart. Then also lay a plot of a contrafund of the broader market, like TZA or SDS on the same graph. You'll see that VIX goes up when the market goes down. Like clockwork. I tried to make money on the differential, but it happens so quick I couldn't do it. My point is that (to me) the VIX is just a fancy way of measuring when the market goes down. It's so correlated to the opposite of market direction that it's almost indistinguishable. So an article that says "the market is going to turn up soon because the VIX is up" is saying the same thing as "the market is going to turn up soon because it is down". Stupid.

You are incorrect my friend. Depending on the time frame you use, the VIX is only about 81% inversely correlated to the S&P, so very far from indistinguishable.

And since the VIX is not an index, it's simply a snapshot statistic in time of the options activity on the S&P 500, of F'ing course you can't use it to capture the difference or predict the market.

Don't you know the difference yet between correlation and causation?

You're criticizing people who misunderstand what the VIX is, all the while you yourself don't seem to have any idea what the VIX is. Not for nothing, but blind leading the blind anyone?

 

[samuel11]

I don't trade a lot of condors, but depending on strike spacing and width wouldn't skew play a big part in the net premium you bring in as opposed to the level of vol?

That’s correct in a way, but skew can also move based on the level of vol.

 

[Smart Money]

You are incorrect my friend. Depending on the time frame you use, the VIX is only about 81% inversely correlated to the S&P, so very far from indistinguishable.

And since the VIX is not an index, it's simply a snapshot statistic in time of the options activity on the S&P 500, of F'ing course you can't use it to capture the difference or predict the market.

Don't you know the difference yet between correlation and causation?

You're criticizing people who misunderstand what the VIX is, all the while you yourself don't seem to have any idea what the VIX is. Not for nothing, but blind leading the blind anyone?

You're right, I don't know whether it is correlation of causation. You say it's 81% correlated, so I presume that is the answer, but causation seems like a plausible answer too since dropping prices cause volatility to spike because the trading range increases (like inside in a Bollinger band). Perhaps you meant correlation in the statistical sense, in which case I would respond that it's kind of bold to throw a single number out there. Might be 90% or 70% tomorrow. I'm an engineer, not a scientist, so I only know that from my own perspective, it is too close for me to make money based on the tools I have at my disposal. Maybe if I had an automated system that tried to exploit differences in the VIX and the overall market at a rapid pace...

I was simply pointing out something that I observed that might be interesting. Since the VIX is so closely correlated (mathematically, speaking) to the VIX, it is ill-advised to go long based on strong VIX reading because you're going against the market. You however, do have 19% correlation (plus or minus) to play with there, so be my guest. Didn't intend to incite Jackass comments. I thought this was a sharing forum. I'll drop out of this thread so I share with others elsewhere. The people remaining in this thread can learn a lot from you, without the benefit of outside input.

 

[VIXTrader]

You're right, I don't know whether it is correlation of causation. You say it's 81% correlated, so I presume that is the answer, but causation seems like a plausible answer too since dropping prices cause volatility to spike because the trading range increases (like inside in a Bollinger band). Perhaps you meant correlation in the statistical sense, in which case I would respond that it's kind of bold to throw a single number out there. Might be 90% or 70% tomorrow. I'm an engineer, not a scientist, so I only know that from my own perspective, it is too close for me to make money based on the tools I have at my disposal. Maybe if I had an automated system that tried to exploit differences in the VIX and the overall market at a rapid pace...

I was simply pointing out something that I observed that might be interesting. Since the VIX is so closely correlated (mathematically, speaking) to the VIX, it is ill-advised to go long based on strong VIX reading because you're going against the market. You however, do have 19% correlation (plus or minus) to play with there, so be my guest. Didn't intend to incite Jackass comments. I thought this was a sharing forum. I'll drop out of this thread so I share with others elsewhere. The people remaining in this thread can learn a lot from you, without the benefit of outside input.

It wasn't a jackass comment, it was an educational one. You don't seem to have any idea what the VIX is, and maybe being made aware of that would push you to learn more and contribute things that are actually true? Or maybe it would just push you to make a backhanded reply and exit the thread. You decide which is which


Once again you say causation seems plausible, as if just saying something twice makes it more true the second time around. Ok once again I repeat, the VIX is a snapshot statistical representation of the options activity on the S&P 500. I repeat, the VIX is a representation of the ALREADY EXISTING options open interest on the S&P 500.

Now read that as many times as you need to and then go back and think about correlation vs causation. Good luck my friend

 

[Sotnis]

Look at the candle on the $VIX on friday. It is finishing lower. Not much volatility in the sell-off.. Like a drunk stumbling in the streets.