In my recent MTA webinar (http://go.mta.org/watch112013), I emphasized the point that there has never been a better time to be a trader. The number and variety of opportunities available is fairly amazing. So let’s take a look at another trading opportunity that was not available at all not that long ago.
Here are the Trigger rules:
-VIX Index <=20
-(VIX Index close – VIX Index 10-day moving average) is greater than or equal to 3.00 points
-(VIX Index close – VIX Index 10-day moving average) then declines for one day (i.e., the gap is less than the value yesterday and yesterday’s value was +3.00 points or more).
When this happens:
– Buy a put option on ticker VXX using the following guidelines:
-At least 40 days left until expiration
-The highest Gamma among near-the-money puts
The 4-day RSI for the VIX Index itself drops to 30 or below.
For the record, this strategy has an extremely limited track record, so I would not be too quick to jump on board. Still the results are promising.
Figures 2, 3 and 4 display the most recent VXX trade signaled Figure 2 – VXX high Gamma puts (Courtesy: www.OptionsAnalysis.com)
Figure 5 displays the hypothetical results (note no deductions for slippage and commissions) assuming that $2,500 was committed to each trade. Also note that it is possible to have more than one trade on at a time. Figure 5 – Hypothetical Results 2012-2013
Again, this is a very limited track record. Also, because this method looks at the raw number of points between the VIX close and it’s 10-day moving average (rather than a percentage difference) it is probably only useful when the VIX is at a relatively low level (i.e., below 20).
But it does provide one more potentially useful arrow in the quiver for an alert trader.