Tackle Today: VIX Tricks
March 3, 2022
«Watch these levels.»
Traders,
The CBOE Volatility Index (VIX) has many uses:
- It can tell you if options are cheap or expensive.
- It also reveals how much fear is in the marketplace.
- 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.
- A VIX of 16 implies 1% daily moves.
- A VIX of 32 implies 2% daily moves.
- 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
Come down already, mister VIX. 20 misses you.
Today’s Line up
Traders Lounge 11 AM EST
Join the coaches in this live lounge, ask questions, discuss ideas or just sit back and listen to veteran traders discuss market conditions.
Cashflow Club 8:30 PM EST
Held every Thursday before Friday’s option contract expirations, this show helps you perfect your favorite cashflow strategies.
Halftime Report 12:30 PM EST
The Halftime Report starts at 12:30 EST and covers what news is driving the market, chart analysis from the movers and shakers of the day, and fun in a way that only Matt and Tim can deliver.
Financial freedom is a journey
Sign up now and gain unfettered access to all of the quality content and powerful Scouting Reports that our Pro Members enjoy for 15-days absolutely free with no strings attached and let us show you what your trading has been missing.
Legal Disclaimer
Tackle Trading LLC (“Tackle Trading”) is providing this website and any related materials, including newsletters, blog posts, videos, social media postings and any other communications (collectively, the “Materials”) on an “as-is” basis. This means that although Tackle Trading strives to make the information accurate, thorough and current, neither Tackle Trading nor the author(s) of the Materials or the moderators guarantee or warrant the Materials or accept liability for any damage, loss or expense arising from the use of the Materials, whether based in tort, contract, or otherwise. Tackle Trading is providing the Materials for educational purposes only. We are not providing legal, accounting, or financial advisory services, and this is not a solicitation or recommendation to buy or sell any stocks, options, or other financial instruments or investments. Examples that address specific assets, stocks, options or other financial instrument transactions are for illustrative purposes only and are not intended to represent specific trades or transactions that we have conducted. In fact, for the purpose of illustration, we may use examples that are different from or contrary to transactions we have conducted or positions we hold. Furthermore, this website and any information or training herein are not intended as a solicitation for any future relationship, business or otherwise, between the users and the moderators. No express or implied warranties are being made with respect to these services and products. By using the Materials, each user agrees to indemnify and hold Tackle Trading harmless from all losses, expenses and costs, including reasonable attorneys’ fees, arising out of or resulting from user’s use of the Materials. In no event shall Tackle Trading or the author(s) or moderators be liable for any direct, special, consequential or incidental damages arising out of or related to the Materials. If this limitation on damages is not enforceable in some states, the total amount of Tackle Trading’s liability to the user or others shall not exceed the amount paid by the user for such Materials.
All investing and trading in the securities market involves a high degree of risk. Any decisions to place trades in the financial markets, including trading in stocks, options or other financial instruments, is a personal decision that should only be made after conducting thorough independent research, including a personal risk and financial assessment, and prior consultation with the user’s investment, legal, tax and accounting advisers, to determine whether such trading or investment is appropriate for that user.
