VIX as an indicator.

TimtheEnchanter

TimtheEnchanter

"One of the earliest mantras investors one learns in relation to the VIX is "When the VIX is high, it's time to buy. When the VIX is low, look out below!" The figure below attempts to identify various support and resistance areas that have existed throughout the VIX's history, dating back to its creation in 1997. Notice how the VIX established a support area near the 19-point level early on in its existence and returned to it in previous years." https://www.investopedia.com/articl... the VIX reaches the,that reflect the S&P 500.

Yet I was reading some pundits that a VIX being high is bearish market sentiment and this was the case in March 2020. What is your opinion?
 
HomelyWizzard said:
...

Yet I was reading some pundits that a VIX being high is bearish market sentiment and this was the case in March 2020. What is your opinion?
More...

Well, in March when the VIX popped near 90, we know the result, don't we? Was a buying frenzy.

There is now talk of the decoupling they mention happening now.

Here's the fun bit. With VolQ coming on Oct 5th from the CME, we get a whole new set of metrics, because the Nasdaq is so far decoupled from reality it should show some interesting depth into how FUBAR the markets all are.

VolQ futures vs. VX futures, anyone? Wheeeee!
 
Overnight said:
Well, in March when the VIX popped near 90, we know the result, don't we? Was a buying frenzy.

There is now talk of the decoupling they mention happening now.

Here's the fun bit. With VolQ coming on Oct 5th from the CME, we get a whole new set of metrics, because the Nasdaq is so far decoupled from reality it should show some interesting depth into how FUBAR the markets all are.

VolQ futures vs. VX futures, anyone? Wheeeee!
More...
So according to some the current VIX is the normal range and if/when it drops substantially, WATCH OUT? This decoupling is just a theory, isn't it?
 
HomelyWizzard said:
So according to some the current VIX is the normal range and if/when it drops substantially, WATCH OUT? This decoupling is just a theory, isn't it?
More...

I can't find the article I read about this in the last 24 hours, but the theory goes something like this...

The VIX has been stubbornly resisting falling below it's current average level of 24ish. With markets at these levels, one would think the VIX would be back down to it's older average of 12-15ish. This leads some to believe that the disconnect between the VIX and the SP is a bad sign.

It had something to do with the insane amount of calls vs. puts on the SP. Way more calls than puts. Wish I could find that article for you. Alas.

Just found this related article though...

https://www.zerohedge.com/markets/s...an-2021-volatility-explosion-could-be-nearing
 
HomelyWizzard said:
"One of the earliest mantras investors one learns in relation to the VIX is "When the VIX is high, it's time to buy. When the VIX is low, look out below!" The figure below attempts to identify various support and resistance areas that have existed throughout the VIX's history, dating back to its creation in 1997. Notice how the VIX established a support area near the 19-point level early on in its existence and returned to it in previous years." https://www.investopedia.com/articles/optioninvestor/09/implied-volatility-contrary-indicator.asp#:~:text=When the VIX reaches the,that reflect the S&P 500.

Yet I was reading some pundits that a VIX being high is bearish market sentiment and this was the case in March 2020. What is your opinion?
More...

Define when the VIX is high ?

To some its when the VIX hits 30...they then buy and get nailed for a big loss when the VIX climbs to 40.

To others its when the VIX hits 40...they then buy and get nailed for a big loss when the VIX climbs to 50.

and so and so on.

I saw a lot of traders blow up in March as the VIX rose quickly to pop above 80.

Best to use it as a mean reversion strategy instead of as a timing strategy via general statements like when the VIX is high...its time to buy.

wrbtrader
 
you can use tick and trin ... its works opposite each other ...one goes up and other goes down ,,, its good for a quick trading.
 
HomelyWizzard said:
...The figure below attempts to identify various support and resistance areas that have existed throughout the VIX's history, dating back to its creation in 1997. Notice how the VIX established a support area near the 19-point level early on in its existence and returned to it in previous years.
More...

You would do well to ignore "Investopedia" as a source for trading or investment knowledge, as it is rife with inaccuracies, unsupported claims, and outright falsehoods. Taking just the quote above, "support" and "resistance" are terms intended to imbue collective market action with characteristics of individual traders. ((Side note: Though there is plenty of ecological fallacy in the contention (attributing a single goal from a massed and multivarious populace), it is something that Chicago School/Austrian School/Price Theory toys with, all the time. "Meh!")) The thing is, even granting great legitimacy to "support" and "resistance", they are terms that stem from market action, while the source of the VIX is thrice-removed from anything bought or traded as a good or service.

First, you have a market. Then, you have an option on that market, THEN you take partial-derivatives (delta, theta, rho), THEN you back out the volatility ("Vega!") implied by that option's price. And THAT only gets you to IMPLIED volatility, FOR A SINGLE OPTiON, at a single strike, for a single expiration. Now, repeat that over the announced strike&expiry universe, cook it all together, and you have the VIX. To imbue "support" or "resistance" to such a number is something so stupid that only "Investopedia" could be involved.

Best advice for your account balance: "Investipedia" -- Don't.
 
Last edited:
HomelyWizzard said:
"One of the earliest mantras investors one learns in relation to the VIX is "When the VIX is high, it's time to buy. When the VIX is low, look out below!" The figure below attempts to identify various support and resistance areas that have existed throughout the VIX's history, dating back to its creation in 1997. Notice how the VIX established a support area near the 19-point level early on in its existence and returned to it in previous years." https://www.investopedia.com/articles/optioninvestor/09/implied-volatility-contrary-indicator.asp#:~:text=When the VIX reaches the,that reflect the S&P 500.

Yet I was reading some pundits that a VIX being high is bearish market sentiment and this was the case in March 2020. What is your opinion?
More...

VIX is useful to me a key market indicator, and I engage it in all my systems. Assuming that one is trading US equities or derivatives, a market in high VIX conditions is just not the same as a low VIX market. They are often worlds apart, and deserving of a different trading approach, and different expectations.
 
lindq said:
VIX is useful to me a key market indicator, and I engage it in all my systems. Assuming that one is trading US equities or derivatives, a market in high VIX conditions is just not the same as a low VIX market. They are often worlds apart, and deserving of a different trading approach, and different expectations.
More...

You also need the market context about why the VIX is high and why the VIX is low.

Thus, to use the VIX strictly via a number without the market context is extremely problematic in trading which is why there's a world of difference between why a VIX is high versus why the VIX is low that requires a different trading approach between the two.

wrbtrader
 
You must log in or register to reply here.
Back
Top