Ok, listened to the compound podcast- heard something about VIX having a mean of 20 and a standard deviation (sigma) of 8. Guy also mentions that 20 and 36 are inflection points. I compared VIX and SPY on a chart and found this to be generally true- 36 VIX is typically a good time to buy a dip and 20 VIX can be a good time to sell if you had previously bought at 36. If you had bought at at VIX lower than 20, then 20 is a good time to sell. Obviously there will be exceptions, and VIX has gone much higher during 2008 and 2020 crashes, up to 60 and higher.
It appears to me that because wall street may use these metrics of the VIX as a trading signal that the charts end up reflecting large trading activity by investment banks and institutions. You also wouldn't want to speculate on individual stocks using VIX- more like using VIX as a signal to trade options on SPY.
It would theoretically look like this:
- VIX hits 36. Buy slightly OTM calls 3-6 months+ to exp.
- VIX approaches 20. Sell calls. Buy puts with stop loss. Same with slightly OTM, 3-6 months+
- Sell puts when VIX spikes, buy calls again. Repeat as desired.
Currently VIX is at 19.62, just below 20. We appear to be at an inflection point where either the bull market is going to recover or we are headed for another leg down as rate hike fears, supply chain problems, and inflation hurt corporate earnings.
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