A Simple VIX Hit-and-Run Method

  • SumoMe

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

Hold until:

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.

Figure 1 displays ticker VIX with some signal dates noted. jotm20131204-01Figure 1 – VIX Index (Courtesy: AIQ TradingExpert)

Figures 2, 3 and 4 display the most recent VXX trade signaledjotm20131204-02 Figure 2 – VXX high Gamma puts (Courtesy: www.OptionsAnalysis.com)

jotm20131204-03Figure 3 – VXX Put trade (Courtesy: www.OptionsAnalysis.comjotm20131204-04Figure 4 – VXX Put trade (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. jotm20131204-05Figure 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.

Jay Kaeppel


2 thoughts on “A Simple VIX Hit-and-Run Method

  1. In the results, what is the second column labeled Price? It doesn’t correspond to the VIX on those dates (at least from the Yahoo Finance ^VIX chart).

    Kevin H

    1. Excellent question! That “Price” is the price of ticker VXX and NOT VIX as of that date. Also confusing things a bit is the fact that VXX experienced a 1-to-4 split recently. So for example, as of 10/9/13 the price of ticker VXX was 16.37. However, if you look it up now it will show the split adjusted price of 65.48. Hope that clears it up.

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