How to Make Money Trading VIX

Yo Pit Crazies,

 

I am excited. VIX is finally moving — and that means opportunities to profit.

 

Specifically, the index is moving above one of my four key zones (I’ll explain those inside), and usually when that happens, I expect a continued bout of selling in the S&P 500. Now, that does not mean I am a grumpy old bear, but rather that’s the time when stocks get cheaper … and cheap stuff is better to buy. 

 

So, VIX is moving — but do you fully understand what that movement means and how to harness its power for maximum gains (while smartly managing risk)?

 

We created an entire system to identify when VIX was ready to move. 

 

Let’s see why …

 

Key VIX Areas

 

The Cboe Volatility Index (VIX) is about levels.

 

VIX is a “mean reverting” product, so it does not go up forever or go down forever.

 

In other words, it does not trade like Apple (Ticker: AAPL).

 

Look at the two charts below. 

 

AAPL is up roughly 50% this last year …

 

AAPL one-year chart with daily candles.

 

VIX,von the other hand, has had several spikes up 50-80% or more, then quickly dropped back down to where it came from. During February and March of 2020, VIX was up five-fold!

 

VIX 1 year chart with daily candles

 

That is the nature of VIX, which is a 30-day forward moving average for volatility in the S&P 500. It’s a different beast and there are different tools to tame it.

 

You can learn those tools every week in Mark Sebastian’s Volatility Edge program — starting with a special monthly subscription available through Monday.

 

And when it comes down to it, volatility is the only truly non-correlated financial asset so on Friday when most stocks were dropping VIX was going up.

 

Back to Levels

 

As I mentioned, VIX is all about levels. Here they are:

 

      • Zone 1 9-12 Smooth Sailing for SPX
      • Zone 2 13-17 Getting A Little Squirrely for SPX
      • Zone 3 18-23 High Anxiety for SPX
      • Zone 4 24+ Danger Zone for SPX

VIX options make good money above 20 and below 16. However, the index has not dropped below 16 due to COVID, supply chain issues, inflation, etc. That has hurt downside profitability in my own strategy.

 

But VIX closed at 20.81 on Friday and things are about to get interesting. 

 

You see, something, somewhere has to give. Either the market goes lower or VIX drops.

 

I filled a long strangle, long call spread, long put, VIX Oct. 20 25/40 call spread and 19-strike put on Friday very late into the session. It pays at 16 but really pays at 25. So we’ll see what this week brings.

 

Learning VIX futures, VVIX (the volatility of VIX), implied volatility and other key vocabulary will make you a better trader. 

 

But doing it on your own is tough.

 

The Lesson: It’s near-impossible to trade VIX with just a focus on equities. Hop on over to the Volatility Edge if you want to expand your knowledge and profit opportunities.

 

Pro Trading Room:
The Pro Room is Option Pit’s live access to Mark and myself during trading hours. Our Pro students post trade ideas with Mark and me during the entire trading session. 

 

The Pro Room was mostly looking at new setups with higher volatility. Mark’s AAPL idea from Friday is a good sample:

 

 

Volatility Edge & Volatility Trading Club:

Volatility Edge is run by Mark and uses the proprietary Option Pit VIX Light indicator to guide volatility trading. The Vol Trade Club is run by me (AG), and employs a long strangle strategy that seeks to use VIX future decay to pay for upside VIX, VXX and UVXY options.

The Option Pit VIX Stop Light Is Red, but will most likely turn yellow on Monday. VIX is poised to move.

 

I closed VTC Trade No. #259 on Friday for an 8% gain. Looking for a bit more SPX downside next week.

 

Remember, a lot of vol strategies I use are market neutral. That means whether SPX or VIX go up or down, the positions still make money. This is a technique you can learn in the Volatility Trading Club and Volatility Edge!

 

To Your Trading Success,

AG

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