Larry McMillan's "Q&A w/MAC"--$VIX...
qs.optionstrategist.com
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Rearranged for ease of reading.
>>>Q&A w/MAC:
Category: Volume and Volatility Number: 447 3/22/01
Question:
We would all be a lot wealthier if we could benefit from 60 day hindsight. My point, to be candid, is not to comment as a 'smart-a--' but, rather learn how to better read the VIX. When searching, I found your article... you seem to indicate that when the VIX creates a 'V bottom' that's a true bearish signal? My limited understanding was the VIX can signal a bullish trend when it trends over 35? It has avg'd well over 30 for March, indicating to me we are setting up for a bullish undercurrent. Would you agree?
Answer:
$VIX is fairly simple to interpret, but many analysts are trying to do too much with it.
There are two scenarios:
1) When the market is declining rapidly, and $VIX is therefore CLIMBING rapidly,
... there is a buy signal when $VIX makes a spike top -- regardless of the level.
Don't get trapped into using levels such as 30 or 35.
A few years from now, they won't mean anything.
Be dynamic -- such as just requiring a spike peak for a buy signal.
It apears that we just had one yesterday when VIX spiked up to 42 and then closed at 35 today.
They last anywhere from a week or two, to sometimes durations of 6 months or more.
2) When $VIX is at very low levels,
... that is time to buy straddles.
Often, the market does declines from there, but in several cases in history, it has risen after a very low $VIX reading.
So we usually buy straddles after $VIX makes a V bottom. <<< |
