How to Trade the VIX, When Should You Buy or Short the VIX?
The VIX, which is the short hand ticker symbol for a stock ETF known as the Volatility Index, is an index that measures market volatility and psychological fear among the population. It is also commonly known as the fear index or the fear gauge, and is used to gauge market panic and the times of the stock market. If we look at historical trends of the VIX, it typically hovers in the 10 to 15 range, with skyrockets to 45 and 85 at different tantalizing periods in stock market history. In 2007/2008, the VIX hit an all time high of close to 50, while during the Coronavirus panic of 2020, the VIX hit 86. In this blog post, I’ll walk you through how to trade the VIX, and of how I think you can easily generate Alpha by trading it at certain intervals. Read on or subscribe to our blog for additional details and information.
How to Trade the VIX, When to Short It
So, here’s my own personal theory on how to trade the VIX, and I am going to test this out sometime in the next few years. I should have done it during the market crash of the 2020 pandemic, because I could literally see the board and could have shorted the VIX, or better yet purchased VIX put options (no doubt at a gnarly premium) in order to make a huge profit. My strategy now is to use VIX limit orders in order to get a good price on the stock, either higher or low depending on whether you are purchasing short or long. What you do is, size up on positions when the VIX gets high, and if the short starts going against you, dollar cost average it and buy more shorts as the stock goes up in order to keep your overall average position high enough to keep you afloat (you can buy call options to defend yourself at the same time if you buy a large enough position.) No matter how high the VIX goes, it will always go back down, as history shows, so this, while an extremely risky strategy, can I feel work given enough tries.
How to Trade the VIX, When to Buy VIX ETFs Long
I would recommend buying the VIX long during peace times, when the market is at an all time high, the economy is soaring, and the VIX is at an all time low. The market experts will tell you that holding the VIX is not really a good option because of how volatile it is, but neither is holding precious metal ETFs and people do that too. I say buy the VIX low and sell when the fear hits. Like Warren Buffet says, the best way to make money is to buy when there is blood running in the streets.
Final Thoughts on How to Trade the VIX, My Opinion
So that’s how I personally would trade the VIX. Be sure to use Limit orders to get yourself a better price while doing this. You can often times get yourself a lower buy price when going long by several cents on the same market day, since stocks swing a pretty solid amount during each trading day. What do you think of my VIX trading strategy? Read on or subscribe to our blog for additional details and information.
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