Measuring Expectations With Volatility Index 75
June 1, 2021
The Volatility Index 75 or VIX measures expectations for volatility, with put and call option activity underlying its calculations. While VIX focuses on S&P 500 data, traders and hedgers can also check the Nasdaq-100 via the CBOE Nasdaq Volatility Index and the Dow Jones Industrial Average via the CBOE DJIA Volatility Index. The moving average applied to the volatility 75 or VIX forms the basis for various buying and selling strategies based on broad-based instruments, as well as volatility-based futures contracts and traded funds. Read more about Volatility Index 75 at http://www.volatility75.net/.
But, it is sufficient to implement technical analysis straight to the index, skirting the estimation of futures or funds as the pricing on those instruments fails within the yield turn and contango, which reflects the time variation between the future price and the spot price. Smart traders can counter this slump by rolling out futures contracts, but funds track continuous charts which make them unsuitable for holding periods that last longer than a few days. Traders measure trend volatility with long and short-term VIX charts, looking for sympathetic equities, options, and futures exposures. The Rising VIX tends to increase the correlation between the equity index and the underlying component, making index funds more attractive than individual securities. Falling VIX reverses this equation, supporting the stock market where individual securities offer better trading opportunities than index funds.
The intraday VIX chart provides an important internal measure of volatility and risk sentiment over a short period. Feedback can be used as a reliable but sensible trigger for a trading basket that favors risk assumptions (buying growth instruments and selling defensive instruments) or risk aversion (buying defensive instruments and sales growth instruments). The 15-minute timeframe works well for this purpose, focusing on the reversals that mark sentiment shifting during the trading day. However, the VIX’s intraday pattern can look ragged, making it difficult to find reliable signals. Placing the 10-bar SMA above the price smooths this turn, increasing the signal while reducing noise. As the NYSE TICK and advance: data is declining, the trio of indicators can read price and sentiment swings with surprising precision.