The VIX has mean-reverted below 20

Discussion in 'Trading' started by ASusilovic, Apr 21, 2008.

  1. Bill at VIX and More has a more intelligent analysis of the low VIX than that which we heard on TV.

    * Focus on the relative values of the VIX (i.e., with respect to a recent trading range) instead of absolute values

    * Consider the cash VIX in the context of expectations for future volatility

    * The more extreme readings give more reliable signals

    * History favors mean reversion for the VIX

    * Mean reversion does not always happen quickly, so scale in to a position

    * If you follow good risk control, VIX signals are one of the few ones for which it is acceptable to add to losing positions (assuming the mean reversion signal is still valid)

    * Be sure to start taking profits in no less than 1-2 weeks

    So…that is my thinking. A sub-20 VIX? Not really relevant. A VIX more than 10% below the 10 day SMA? Generally tradeable. A better signal? While it is still too early ‘cling tightly’ to the VXV (an index that calculates the 93 day implied volatility for the SPX options), I am bullish on the VIX:VXV ratio – and the chart of that ratio suggests that the market is approaching an overbought condition.
  2. DennisR


    I was following the same trade pattern all year. (buying below 10dma, selling above etc.) It made me money overall but i got burned bad last month, 1-2 weeks is most you want to be long vix. a couple weeks before expiration you better be ready for option pricing to fall off a cliff.

    ps. Vix and more is a great site. I'm learning a lot and am trying to unlock the potential of vix options. I feel they have the most opportunity. Now looks like a good time to go long, option pricing still trading lower than friday even though vix index actually higher. good luck, be careful with these suckers.
  3. I don't think thaa Bill said sub 20 represented mean reversion:
    rather that it represented a diversion from what he felt current mean should be.

    IMO this implies long calls/short puts for May.
  4. Playing the mean-reversion game with VIX is a losing bet. It can stay well below or well above its mean for years.
  5. Mean VIX to me means where I think it ought to be.
    I'm thinking in terms of moving averages, weeks rather than months, and the type of market we are in and whether that is going to change anytime soon.

    My unscientific analysis has VIX closing in a range 22.5 thru 30 75% of the time and that's how I trade it. VIX is 21 as I write, if it stays below 22.5 for the rest of the week I'll have to revisit my model and revise the mean.