2 thoughts on “VIX Holds its 200 Day Moving Average

  1. Rob

    What are your thoughts on using traditional technical analysis on the VIX? I have two major issues…the first and biggest is that you cannot trade the underlying. The essence of TA is identifying support and resistance levels that bring in buying or selling pressure…this does not exist here. The second issue is it’s a derivative of a derivative (of a derivative) – it’s priced/calculated off of SPX options, which have their own supply/demand picture….which are based on action in the SPX itself (which is based on 500 underlying stocks with their own action). So by the time you get to the VIX you are so many steps removed from the buying and selling of actual securities that it’s difficult to pinpoint what, if anything, is significant. I trade a lot of volatility itself (VXX/ZIV, index options) and haven’t found a great way to follow it on the charts to get any edge, I find looking at the term structure of VIX futures far more useful to identify demand/fear. Charting VXX will give you a better picture of actual supply and demand but the further you go back the more it is muddied by the persistent and brutal contango headwinds (ie what could’ve been a crucial support area at $40 six months ago might have been eroded to an equivalent of $30…but the only thing that shows up on the chart is a long decline of varying speed).

    Reply
    1. Rob Moreno Post author

      Rob,
      Sorry it took so long to get back to you. I agree with everything you said about the VIX. It is a third level derivative of the the S&P 500, but it does have an 88% inverse correlation to the index. Bottom line is that while it is simply a statistic, it is widely followed and one than bears attention at key technical levels, if nothing other than a market sentiment indicator.
      The VXX and the VXZ are useful only for short term trades because of the serious contango issue you mentioned, and not suited for my trading timeframe.
      Have you ever thought of just charting the VIX as a standalone measure of volatility, and trading the VIX options or futures?
      Anyway, sorry again for the delay getting back you, I was traveling this week and got behind on my emails. Thanks for reading and thanks for the interesting comments. I’m not expert on options and term structure and would appreciate any insights you might have in the future.
      Rob

      (9/19 – Rob, I ran across this article and thought you might find it interesting.)

      Reply

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