Wednesday, May 06, 2009
Simple trading method with VIX index
VIX is the symbol for "Chicago Board Options Exchange Volatility Index", its a measure of the implied volatility of S&P 500 index options. The VIX is the square root of the par variance swap rate for a 30 day term initiated today. A high value corresponds to a more volatile market.
A simple trading method according to VIX can be as follows:
SELL 1/3 of holding when VIX cross above its 40 days moving average.
SELL at least 2/3 of holding when current value of VIX exceed the last peak.
BUY when VIX cross below its 40 days moving average.
Continue to BUY until VIX bottom.
Also, the market in Sep 07 after the VIX peak was in a strange critical phase where correlation matrix showed unusal coherence.
