We are living in days of high #Vix with added volatility & movement in our favorite indices
There have been strange opens & very quick movements some to profits, others to losses
There is always a message in the data. Data speaks
Let's explore what Vix wants to tell us
Vix is at 25- 30 currently.
Is this Normal?
Data from 2010 suggests this as an outlier
A vix above 30 has been trading less than 55 times in 3000 sessions!
It's a 1.83%
For those who are new to trading , this is a TIME Profile of the VIX from March 2020.
The mode is seen at 18-20 and anything above the red line of 25 is 2nd standard deviation territory for the markets and a change in Vix regime.
Translation - Vix from March 2020 is telling us that if we stay above 1 standard deviation of 25 and continue to do things which you did at mode of 18-20 , you will not get the same results
In other words, if you are making losses, relook at your trading strategies and change.
But this "adjustment" is for the short term only as I mentioned before this Vix event is an outlier .
To cut losses, CHANGE your methods for short term.
You can use the data in VIX to calculate the potential move of the index.
I did this post back in 2010 and another 1 in 2013
There are a number of methods to calculate the range using the data from the VIX. I have been using this one for over a decade and prefer this one over the others . I'll try to explain.
You need the price of the previous day and the Vix value .
The #Nifty closed at 16630 with a vix reading of 25.34
I'm looking at weekly expiry for 17th.
( The method is explained in the above post)
The range I get is 17130 on higher side and 16130 on the lower side.
The formula can be taken from the image below
Roughly a 500 either side of 16630.
Let's see what our wise men in the option market are planning.
The 16600 strike has 252 in the call and 212 in the PUT for a 464 point range.
So they see a range of 465- 500 as well ( 10% is allowed for 5 days)
BUT, what if I want to see what will happen on Monday ?
I just change the "days to consider" to 1 and I get a range of 16853- 16406 for Monday .
What it is telling me now, is that roughly a 225 point move is possible on the same vix and I need to be ready to account for it.
And I can use the same formula to see what the Nifty can do over the next settlement which is 12 days away
12 days away, we are looking at 17404- 15855 provided VIX does not move up a lot
Option guys are pricing 617 points, which means a lower xix than 25 by 24th Mar
A quick look at the same data is telling you that the option market is charging a 120 rupee premium per ATM strike currently for the 17th settlement
This may be to do with the FED event on Wed
To sum up, data through VIX is in the 2nd Sigma mode and hence you need to adjust your methods .
Ranges are higher so your normal formula for stop losses and profits also do not work
Key to life and in trade, is change.
Use the information from data to make a change.
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On that FII selling tweet, I posted earlier, they started selling aggressively in Oct and it was a foregone conclusion that they would keep selling into March as the hike kicks in.
It's all to do with the adjustment in books.
They have managed through long stock futures also.
My view is that we are approaching a selling climax for Fii's now based on the little I know of how these desks operate
I wont be surprised to see a positive FII CASH number in the second half of this month
For those posting FII 1 billion $ sell figure etc, please note that for them to sell 1 billion there has to be buyers to pick the tab for a 1 billion buy also.
And between DII and Retail we have them.
Just SIP money coming in was 10000 CR in Dec and Nov
When i started off in #derivatives#trading, some 15 years back, the "default trade" taught to us was to trade in Futures or to BUY calls or BUY puts as the need arose.
These days the "default trade" is to SELL calls and SELL puts.
Thanks to a spurt in online education, you learn quickly to sell options at 09.25 am and at 12.30 pm and every time of the year.
No education is provided for things like VIX, directional volatility, IV smiles or even basic gamma math
And the numbers speak.
The option market today is 10 times the volume of the Futures market.
and this is just the weekly contract & on normal days of fri to wed.
On Thursday the Option volume market goes up 3X or 30 times the Futures Volumes , mostly writers closing positions
For the record, tweet was posted near 3.00 pm and a follow up was also done post close where I clearly mentioned there was no selling visible in the last 30 mins of the day
Still I get ungrateful and unhappy people on the timeline.
No one does more than me to give quality A grade actionable advise and yet there is no appreciation of the efforts I make for you