- Investors have traded the CBOE Volatility Index (VIX) since it was first created as a measure of investor sentiment regarding future volatility.
- Buying VIX-linked exchange traded funds (ETFs) and exchange traded notes (ETNs) is the most common strategy to trade the index.
- The iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX), the iPath S&P 500 Dynamic VIX ETN (XVZ), and the ProShares Short VIX Short-Term Futures ETF are all VIX-related ETFs and ETNs (SVXY).
Is VIX available on Robinhood?
Although there is no way to invest directly in the VIX, there are assets that seek to replicate the VIX. There are futures contracts, for starters. Traders can buy VIX-based futures contracts. Traders can also choose from index options based on the VIX.
How can I get VXX?
When the S&P 500 falls, VXX usually has a big move. VXX’s movements are often much larger than the S&P 500’s. For example, a 5% decrease in the S&P 500 may result in a 15% gain in VXX. As a result, trading VXX has a higher profit potential than shorting the SPDR S&P 500 ETF Trust (SPY). VXX has a tendency to “overshoot” on dips in its benchmark, the Standard & Poor’s (S&P) 500 index, so when the S&P 500 recovers, VXX often sells off sharply.
- Short VXX after a price increase, when the S&P 500 starts to rise again and VXX is declining.
Favorable trading circumstances in VXX can last for several days or months, depending on the size of the trend in the S&P 500. The chart below depicts the S&P 500’s short-term dip and reversal, as well as VXX’s surge and selloff.
The statistics show that VXX has a tendency to overreach; the ETN soared 105 percent despite the S&P 500 falling 11.84 percent. When the S&P 500 bounced 10% off the bottom, it plummeted 31.6 percent. Day traders will want to trade VXX at moments like these.
VXX will progressively decline when the S&P 500 is in a steady rally with little downside movement. Day trading is not recommended at these times. The best possibilities arise during and after an S&P 500 loss of a few percentage points or more.
What ETFs track VIX?
The term “VIX ETFs” is a misnomer. The VIX index is not available to investors directly. VIX ETFs, on the other hand, are most typically used to follow VIX futures indexes. This feature of VIX ETFs brings a number of dangers that investors should be aware of, which will be discussed further below. Within the VIX ETF category, it also gives the possibility of a number of various sorts of products. Furthermore, most VIX ETFs are exchange-traded notes (ETNs), which carry issuing banks’ counterparty risk. Investors in VIX ETFs are usually unconcerned about this.
The iPath S&P 500 VIX Short-Term Futures ETN is one of the most popular VIX ETFs (VXX). This product has a long position in daily-rolling VIX futures contracts for the first and second months.
My Top 5 rules for Vol 75
Volatility moves in a zigzag pattern, thus you can profit from the market if you can notice the creation of a ‘W’of ‘M’ depending on the market structure.
I didn’t make much money in my first week of trading Vol 75, but after two weeks of consistency, I started making a lot of money. I simply did one thing: I found a method, tested it on the demo, tweaked it, and then used it on my real account.
When to Sell Volatility 75
1. On a daily basis, it should be overbought:
This is crucial; once you’ve identified an overbought condition on the daily or 4-hour period, head over to M15 and seek for an entry point. Stochastic Indicator (percent K period = 1; percent D = 1; Slowing = 1; price field = low/high; style should be the same color as the background of your chart with levels 80 for Overbought, 50 for Wait, and 20 for Oversold) can be used to get the overbought signal. Then, in the Stochastic Indicator window, add Alligator Indicator with the following parameters (Jaw Period 13; Jaw Shift 8; Teeth Period 8; Teeth Shift 5; Lips Period 5; Lips Shift 3; Lips Period 5; Lips Shift 3; Lips Period 5; Lips Shift 3; Lips Period 5; Lips Shift 3; Lips Period 5; Lips Shift 3; Lips Shif Method – Smoothed, Apply to Median Price (HL/2); style – Jaw 3 pixel (blue), Teeth 1 pixel (red), and Lips 2 pixel (green)
2. After establishing that the higher period is overbought, keep an eye out for the creation of the second leg of the ‘M’ shape on the higher timeframe (that is a kind of inverted V shape formation; if you look at history of V75, you will notice that the shapes always come to play at every point) Switch back to M15 and look for a good entry place once you’ve found it.
Note: It’s critical that the parameters listed above are followed in order to achieve a good profit and avoid losing money.
When to buy Volatility 75
1. On a daily basis, it should be oversold:
2. Once you’ve confirmed that it’s oversold on the higher timeframe, look for the formation of the second leg of the ‘W’ shape on the higher timeframe, then switch back to M15 and look for a perfect entry position and purchase.
To put it another way, if you let the first ‘leg’ of the ‘W’ sell down, then the second leg retest (go up), then the third leg retest down again, you can enter at the last leg of the W for a buy (which is moving up) if it doesn’t break the support. This is the setup I use every day to trade V75, and it has a 95% accuracy rate. Once you have all of the confirmations correct, you will be able to limit your losses while increasing your profits.
Things you should know of when trading V75
Be wary of the market’s stop loss search and liquidity trap; only close your trade in the red if you see a clear violation of the market structure.
Is it possible to trade India VIX?
- India VIX and Nifty have a negative correlation, with VIX falling as Nifty rises and vice versa.
- When the India VIX is high, the market expects a huge change in the Nifty, and vice versa.
- As indicated in the table above, the range of India VIX over the previous four years has been between 13 and 35. Yes, VIX jumped to 50+ levels in 2009 when we had two upward circuits swings on the day the election results were published, but the range has been between 13 and 35 since then. Looking at the last four years of data, we can say that VIX is high if it is over 25 and low if it is below 15, therefore the usual range is 15 to 25.
Trading India VIX
India VIX is an index, and, like Nifty, you can’t actually trade an index without having derivative (F&O) contracts on it. With the advent of India VIX futures, we may now use the India VIX to hedge our portfolio’s volatility risk and/or bet on it.
- Tick size: With a tick value of Rs 0.0025, the India VIX will be calculated up to four decimals (for example, India VIX today is 17.0025)
- Price of quotation: India VIX * 100 (multiples of 100). If a trader wants to purchase or sell India VIX futures contracts at 14.1475, the price that should be offered is Rs.1414.75.
- Margin: Initial Margin of 9% plus Exposure Margin of 5% equals 14% of the contract value.
- If you have a stock portfolio and are concerned about markets falling or volatility rising, consider investing in India VIX futures.
- You notice that India VIX is nearing the peak of its four-year range (about 35), and you predict that it will fall: you can short India VIX futures.
- Elections are approaching, and the India VIX is hovering around 20, indicating that market volatility may increase: you can buy India VIX futures.
Using India VIX instead of Options
The Black-Scholes model predicts that if all other factors remain constant, the price of options rises with rising volatility and falls with falling volatility. Buying or selling options is now the only means to trade volatility (calls or puts as may be the directional bias of the market). The disadvantage of this method is that in the actual world, other factors such as time decay (theta factor) and stock price (delta factor) do not remain constant as volatility moves. As a result, a trader’s ability to just trade volatility with options becomes difficult. A volatility trader who uses the India VIX will be able to trade considerably more efficiently.
Technical Analysis and India VIX
When looking at the historical data for the India VIX, it is clear that it is not a progressive data series, but rather an oscillating data series (range has stayed between 13 and 35). Because the India VIX does not trend after a certain point, but rather oscillates in a range, we should utilize oscillators instead of trending indicators like moving averages. Bollinger Bands are an example of a decent oscillator to employ. See how India VIX has reversed most of the times it has crossed either the upper or lower end of the 20-day Bollinger Band in the chart below.
If you’re a technical analyst, you can predict the movement of the India VIX using other similar oscillators.
How do VIX futures work?
VIX futures are contracts based on the CBOE Volatility Index, also known as the VIX and dubbed “the Fear Index” since it tends to increase when equities fall and investors become afraid. The CBOE Volatility Index gauges the implied volatility of S&P500 stock index near-term options.
On March 26, 2004, VIX futures were created as one of the first inventions in the now quickly expanding volatility derivatives market. They’ve grown in popularity and liquidity, with tens of thousands, if not millions, of VIX futures contracts traded every day.
In 1987, how high did the VIX reach?
While VIX levels above 80, as they were in 2008 and March 2020, appear to be incredibly high, all-time highs would have been far higher if the VIX had been calculated in the 1980s. The VIX index has data going back to 1990, but a lot of it had to be recalculated because the VIX computation method changed dramatically in 2003. CBOE continues to publish data for the previous system under the name VXO, which dates back to 1986 and includes the 1987 stock market crash.
The all-time high VXO close (150.19) and close-to-close rise (+113.82! from 36.37 to 150.19) occurred on Black Monday (19 October 1987).
On October 20, 1987, the intraday high was 172.79. (Tuesday after Black Monday).
For a complete VXO history and a comparison of 1987, 2008, and 2020 highs, see the following statistics:
Although the differences in numbers are typically minor, the VXO calculation process and even the underlying market (S&P 100) differ from the VIX. According to the data, VXO tends to achieve higher highs on the same days than VIX, thus 1987 VIX highs may not have reached 150 (close) or 170 (intraday), but they were almost certainly well above 100.
The VIX could have been significantly greater during previous market catastrophes (particularly in the 1920s), but we’ll never know because options were not traded at the time, and there was no method to compute or predict anything even close to the VIX (because the VIX is calculated from option prices).
What exactly are Uvxy and SVXY?
ProShares Ultra VIX Short-Term Futures ETF (UVXY) and ProShares Short VIX Short-Term Futures ETF (UVXY) are quickly compared and contrasted (SVXY). Both ETFs are traded on the New York Stock Exchange. UVXY debuted on October 3, 2011, while SVXY debuted on October 3, 2011.