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Tackle Today: VIX Tricks

March 3, 2022

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Tackle Today: VIX Tricks

«Watch these levels.»

Traders,

The CBOE Volatility Index (VIX) has many uses:

  1. It can tell you if options are cheap or expensive.
  2. It also reveals how much fear is in the marketplace.
  3. Finally, it suggests how much volatility traders expect each day.

I find the third point quite helpful. While anything is possible and the market can go nowhere or explode 10% in a day, the VIX tells you the most likely outcome. Here are three levels to memorize.

  1. A VIX of 16 implies 1% daily moves.
  2. A VIX of 32 implies 2% daily moves.
  3. A VIX of 48 implies 3% daily moves.

These are specific to the S&P 500. Do you know why the VIX rarely gets to 48? Because it takes an insane market environment to make it so 3% daily moves are the norm. Do you know why it’s also uncommon for the VIX to get to and stay at 32? Because 2% daily moves in the market are also historically unusual.

But that’s where we find ourselves right now. The VIX ramped to 32 on February 14th, and it’s been hovering around there ever since. We usually see quick mean reversion, a rapid return to the low 20s. But not this time! Market uncertainty is causing the VIX to remain sticky at high levels. If the market Gods want to make us believe a real recovery has arrived, they need to slap the VIX back down.

Until they do, I remain nervous of more plunges.


Video of the Day: Jedi Options – What is the Risk Graph

In today’s Jedi Options, Coach Tyler teaches what is the Risk Graph and how to use it to take your options trading to the next level.


Chart of the Day: Sticky VIX

Sticky VIX

Come down already, mister VIX. 20 misses you.


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