VIX Strategy : Risk-ON, Risk-OFF
VRatio is the ratio of VIX3M and VIX. This ratio rises above 1.1; in a bear market, it decreases and goes below 1. VRatio=VIX3M/VIX. More details in Part 2.
VRatio > 1: Risk-On signal
Contango is the ratio of VX2 (first back-month contract) and VX1 (front-month contract) minus one. In a bull market, this indicator rises above 5%’ in a downtrend market, this indicator goes below -5%. More details in Part 2.
Contango > -5%: Risk-On signal
Contango Roll is the ratio of VX2 first back-month contract) and the VIX minus one. In a bull market, this indicator rises above 10%’ in a downtrend market, this indicator goes below -10%. More details in Part 2.
Contango Roll > 10%: Risk-On signal
Volatility Risk Premium (VRP) compares the implied volatility to the recent realized volatility; it attempts to quantify how much “extra” premium (in volatility term) S&P500 option sellers are charging investors for the protection of their portfolio. It can be seen as an insurance premium. A simple way to compute the VRP is VRP= VIX -HV10 where HV10 is the 10-day historical volatility of S&P500. Some people also look at the 5-day moving average of the VRP to smooth this indicator.
VRP > 0: Risk-On signal
Fast Volatility Risk Premium (FVRP) is a variant of the VRP. FVRP=EMA(VIX,7)-HV5 where HV5 the 5-day historical volatility of S&P500.
FVRP > 0: Risk-On signal
Volatility Momentum compares today’s VIX to last 50 days. It has, therefore, quite a bit of lag but it is a useful measure when combined with other indicators. Volatility Momentum=SMA(VIX,50) -VIX.
Volatility Momentum > 0: Risk-On signal
VIX Mean Reversion looks at today’s VIX compared to certain thresholds. We avoid investing in the S&P500 when the VIX is too high (above 20) or too low (below 12).
VIX Mean Reversion > 12 and VIX Mean Reversion < 20: Risk-On signal
VIX3M Mean Reversion works the same way as VIX Mean Reversion.
VIX3M Mean Reversion > 12 and VIX3M Mean Reversion < 20: Risk-On signal
VVIX
Vix Jump for Selling Puts or Buying CallsThis script aims to identify optimal times when to write Puts for premium, for example using the SPX Weeklies model or simply buying Calls. Not perfect but provides some additional confidence when playing Puts on SPX or the Wheel on SPY.
What it does:
We compare current VIX with a lookback VIX for X% delta. If there is a jump of say 20% over a defined period then that would indicate an opportunity to sell Puts, run a straddle or buy Calls. We use VVIX as a check to stop to many false positives ie VVIX falls of faster than VIX.
You can also use this loosely as a bottom finder.
The dispersion of volatility indicesThe script is my implementation of "Forecasting a Volatility Tsunami" by Andrew Thrasher (Thrasher Analytics). You can find the paper here: www.researchgate.net
I've changed a bit the approach - instead of two volatility indices (VIX & VVIX), I used two more: VXN and VXD. Additionally, I average the percentiles, but there is an option to swtich it to the original approach.
Correlation overlayThe script is intended to indicate when the correlation between VIX and VVIX gets below 0, on the selecteted security chart. It makes sense to plot it on indicies. This aims to present how the chart of a security looked like when the divergance between VIX and VVIX happened.
XIV Trading Strategy This simple strategy uses VVIX , the VIX of VIX , to find BUY/SELL signals for XIV. The actual return of for this strategy is actually lower than what is produced by Tradingview's backtesting engine ( 525 % vs 221 % in my testing ) . More detail available in my blog.
Cheers
Algo.
