Friday, January 23, 2009

Updated "Ten Things Everyone Should Know About the VIX"

For those who may be interested, I have just updated last April's Ten Things Everyone Should Know About the VIX, which was #1 on the list of Most Read Posts of 2008.

I will continue to update the "Ten Things..." post as appropriate going forward.


Jeff said...

Are your buy and sell signals using the VIX:VXV ratio hard and fast (I see you reference 1.08 as an entry point, but then later on say that 1.10 would have been better) or is it +/- 10% over the 10d SMA of the ratio?

Bill Luby said...

Hi Jeff,

I don't think I have posted a chart that reflects this, but I tend to favor four signals of increasing strength on the bullish side (ranging from 1.08 to 1.15) and four signals on the bearish side (ranging from 0.92 to 0.85).

I generally use these as guidelines for scaling in and out of positions, for determining when to use options or other forms of leverage, etc.

As for which is better, it's the same old story: 1.10 gives fewer signals, but better ones; 1.08 adds some weaker signals, which should increase expectancy, but lower the percentage of winners.

I think the trick is to use other indicators to help refine entries and exits signaled by the VIX:VXV ratio.



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