Erica Taylor for historical volatility, = Standard deviation(R1:Rn) * square root(252) * 100 R being the daily returns, to the Nth day. For the 30 day VRP, you’d use 21 trading days, for 3 month, 63 trading days, etc Hope that helps!
Just found your channel. All of these videos are amazing. I'm wondering, is there a practical explanation for why the VRP has some predictive power for moves in the S&P? In the video you mention this has to do with relative volatility, but why specifically does a higher relative volatility (higher implied vs historical) indicate that the SPY is in an upward trajectory?
@@mathewrasmussen8669 What I've found with the VRP in my testing is that it generally acts as a way to (roughly) measure risk appetite. The VIX can be interpreted as demand for insurance, since options are widely used for insurance and get more expensive when IV (and therefore the VIX) rises. This is a pretty crude analogy but if the VIX is car insurance and historical volatility is car crash occurrences, then the difference could be a risk premium (if the insurance company is the S&P investor). So when the risk premium exists, markets are more likely to be ‘normal’ since humans tend to be risk averse, over-react and price in a little more volatility than what happens. IV being higher than HV is a well-documented phenomenon. During times when that insurance is actually needed, when HV > IV, we could assume that would likely be associated with the opposite market conditions. It’s kind of following the same pattern of the VIX futures, where most of the time, the futures are above the spot VIX (risk premium exists), but when markets are really shaky, VIX futures are below spot VIX because that insurance is actually paying off. I’ve also had people tell me they put this formula into TradingView and they’ve seen it do a decent job of finding bottoms. This is probably due to HV being a bit of a lag, since it’s calculated using previous 30 days. By the time VRP readings are hitting extreme deep negative, the market is more likely to bounce. Unless it’s the start of the next bear market.. Thanks so much for your support. I’m so glad you like the channel. I’m really just trying to document as much as I can as I go deeper in this rabbit hole, since they say we retain more information from teaching it back to others. I have TONS planned for the channel but content production is time-consuming. At some point, I’ll do streams when I’m more confident in front of the camera!
@@TactileTrade Ok, yeah that does make sense. Thanks for the great + detailed content, I'll definitely be watching in the future. I think these are really some of the best explanations of these topics that I've seen on UA-cam.
I have been trading the vix anytime it gets much below 21. Has worked very well over the last few months. Looks like Monday will be a low before another rise. Hope to get a call option in the $20s. I miss the TVIX though.
Right on, are you trading it on the long or short side? I personally don't trade VIX options, just VXX. And yes volatility has totally collapsed in the last two weeks. It's offered a good shot at short vol redemption since the big spike on Jan 27th during the GameStop drama. That threw a bit of a wrench in our VXX puts.
Vix calls. I personally think we will continue to see increased volatility as stock continue to reach all time highs. I almost exclusively trade cycles. Look up Charles Nenner, I follow his weekly forecast and have done really well combining this with other indicators.
@@jessebrown1497 Ah yes volatility is not going anywhere. I definitely won't be surprised if its a long time yet before we see those pre-March 2020 levels sustained. I'm not big on technical analysis as most of what I do is rules based, trend following and trades in one day increments. I also only go long volatility through VXX when certain conditions are met like steep VIX futures backwardation. I just find long volatility is too tricky otherwise; I much prefer short since it is just a higher probability set up on VIX futures ETNs given how they are designed. I haven't really dabbled in cycles.
7:33 1. VIX is a forecast for ATM spx volatility or expected MOVE? for example : if VIX is 20. does that mean it's forcasting that ATM SPX in the next 30 days will be 20%? or is it forecasting the next 30 days SPX will move +/- 20% starting today. (if SPX is currently trading at 100$/share. expect to move +/- 20$ in the next 30 days) 2. "VIX is express in annual percentage". I dont understand this part. So if VIX is 20%. does that mean, VIX is forecasting what SPX will be doing in the next 12mo ? can we just cross the "30 days expected move " out of the definition to make it easier?
I think I might be able to answer 1 and 2 at once so let me give it a try :) the VIX is forecasting the expected move +/- over the next 30 days for the SPX index itself. It is always over the next 30 days starting from the moment the VIX reading is observed. This 30 day expected move is expressed as an annualized figure. This is where the confusion arises - it is a 30 day period, but expressed annually. When you divide VIX by root(12), you are 'de-annualizing' it back to 30 days. This is a good article breaking it down a bit more: www.indexologyblog.com/2013/10/18/turn-vix-into-information-you-can-use/
@@TactileTrade the article cleared up everything. thank you so much. I just think VIX definition is so DAMN STUPID! stating that it's a 30 day expected volatility when it's actually 1 year. here's my definition of VIX for those that want me to explain it like you're 5yo. VIX is a PERCENTAGE and it forecast the expected move of SPX in 1 year. so if vix is 20 and SPX is currently at 100. expect SPX to move +/- 20% in 1 year or +/- 20 points in 1 year. 1. If you want 30 days expected MOVE . here's a formula for you : VIX / √12 = X 2. NO , VIX is not expected ATM SPX volatility 3. NO , VIX has not an expected SPX movement in the next 30 days even though the definition said so. once again, definiton is wrong and stupid. it's 1 year . get that in your head Let me know if there's any error in my definition of VIX
@@TactileTrade when you said " VIX is forecasting the expected move +/- over the next 30 days for the SPX index itself." This statement is wrong. I beg to differ, VIX is not expected to move for 30 days. It's 1 year. if you want 30 days you have to take Vix and divide by a square root of 12. So if VIX is 20. it means VIX is 20%. and this translates to 1 year expected move-in SPX. (+/-20% ). 1 year is the keyword . 1 YEAR!! 1 YEAR!! 1 year!!!
@@Dylan-zl4uk I mean, technically you are correct. It is saying SPX +/- % in one year. But the goal of the VIX is to forecast for a 30 forward looking period, not a year. It is just expressed as a year (I know, it can be a bit misleading). It is also the same with the other indices too - VIX3M, VIX6M, forward looking 3 month, 6 month volatility of SPX, but both of those are also expressed as an annual figure too. I guess CBOE designed it that way to be common-sized for easier comparison. Since many thing in the finance world are expressed on an annual basis, like interest rates, etc.
@@TactileTrade " the goal of the VIX is to forecast for a 30 forward-looking period, not a year" let me stop you right there. I beg to differ. VIX can forecast a 30 day period ONLY if you divide it by a square root of 12. if you leave it alone without doing any math or without / √ 12 then VIX is a forecast of 1 year period. read the article you send me again and again. it clearly stated that VIX is a 1-year forecast of SPX. Here's another riddle for you : the formula to forecast a 1 year is taking a 30 days options in SPX . Why not take 1-year SPX options to forecast 1-year SPX movement?
@@ivantsanov3650 Remember that vol ETNs track VIX futures, not the VIX. This means when the futures remain in contango, SVXY can continue rising even if the VIX stays flat. While you could short SVXY, I think this strategy still has the same challenges of buying VXX because while waiting for the big crash, SVXY likely would continue its slow climb, just as VXX continues its slow decline. Short selling also has undefined risk and on top of the slow bleed, you'll also be paying loan fees to your broker for borrowing the short shares. To trade volatility : Determine your volatility bias - whether you think underlying VIX futures are more likely to rise or fall - and then choose the most efficient tool for the job to add to your edge. For me personally, I think buying VXX would be more efficient.
Just found your videos. Really, really great content. Very interesting stuff. Please keep going. As a former journalist I would suggest you to tweak your titles a bit to get more viewers. Some examples. Lists are good: "7 tips for successfully trading the Fear-index", "5 biggest fears according to VIX-index", ... Letting the title show how to answer a question also always works: "How to trade the fear-index", "How to be gready when others are fearful - trade the VIX", ... Including specific numbers also gains interest: "Why the VIX pandemic-high reached 53.54" - these kind of titles makes us curious. Try to put some more effort into your titles and I would bet on you getting more views. Good luck!
VIX, volatility in general is definitely a lot of information to soak up. But I think anybody who wants to start trading must learn about volatility very early on because it tells us so much about how markets work. If somebody can't grasp a concept like volatility, then they may struggle as a trader.
@@TactileTrade howevery JP came out and said they wont raise the interest rates.. so we are good for few more weeks.. :D guess tomorrow will be a good consolidation.. and a boom next week ;D
@@robingoransson The dip buying forces in this market are strong! I personally think all this QE might come back to bite at some point which has me a bit worried, but no reason to pull out of the market yet. I'll just keep following the binary signals and move to safety when needed but for now, I'm still long stocks and short volatility.
Was this video helpful? Let me know!
What is the formula for the historical volatility?
Erica Taylor for historical volatility, = Standard deviation(R1:Rn) * square root(252) * 100
R being the daily returns, to the Nth day. For the 30 day VRP, you’d use 21 trading days, for 3 month, 63 trading days, etc
Hope that helps!
Just found your channel. All of these videos are amazing. I'm wondering, is there a practical explanation for why the VRP has some predictive power for moves in the S&P? In the video you mention this has to do with relative volatility, but why specifically does a higher relative volatility (higher implied vs historical) indicate that the SPY is in an upward trajectory?
@@mathewrasmussen8669 What I've found with the VRP in my testing is that it generally acts as a way to (roughly) measure risk appetite. The VIX can be interpreted as demand for insurance, since options are widely used for insurance and get more expensive when IV (and therefore the VIX) rises.
This is a pretty crude analogy but if the VIX is car insurance and historical volatility is car crash occurrences, then the difference could be a risk premium (if the insurance company is the S&P investor). So when the risk premium exists, markets are more likely to be ‘normal’ since humans tend to be risk averse, over-react and price in a little more volatility than what happens. IV being higher than HV is a well-documented phenomenon. During times when that insurance is actually needed, when HV > IV, we could assume that would likely be associated with the opposite market conditions.
It’s kind of following the same pattern of the VIX futures, where most of the time, the futures are above the spot VIX (risk premium exists), but when markets are really shaky, VIX futures are below spot VIX because that insurance is actually paying off.
I’ve also had people tell me they put this formula into TradingView and they’ve seen it do a decent job of finding bottoms. This is probably due to HV being a bit of a lag, since it’s calculated using previous 30 days. By the time VRP readings are hitting extreme deep negative, the market is more likely to bounce. Unless it’s the start of the next bear market..
Thanks so much for your support. I’m so glad you like the channel. I’m really just trying to document as much as I can as I go deeper in this rabbit hole, since they say we retain more information from teaching it back to others. I have TONS planned for the channel but content production is time-consuming. At some point, I’ll do streams when I’m more confident in front of the camera!
@@TactileTrade Ok, yeah that does make sense. Thanks for the great + detailed content, I'll definitely be watching in the future. I think these are really some of the best explanations of these topics that I've seen on UA-cam.
wildly underrated channel, thank you sir
Thanks Very Kindly For Such A Great & Easy Explained VIX Index Indicator Tutorial Video Most Definitely One Of The Best On: UA-cam
Glad you liked it, thank you!
This is an excellent presentation! Thanks.
Glad you liked it!
I have been trading the vix anytime it gets much below 21. Has worked very well over the last few months. Looks like Monday will be a low before another rise. Hope to get a call option in the $20s. I miss the TVIX though.
Right on, are you trading it on the long or short side? I personally don't trade VIX options, just VXX. And yes volatility has totally collapsed in the last two weeks. It's offered a good shot at short vol redemption since the big spike on Jan 27th during the GameStop drama. That threw a bit of a wrench in our VXX puts.
Vix calls. I personally think we will continue to see increased volatility as stock continue to reach all time highs. I almost exclusively trade cycles. Look up Charles Nenner, I follow his weekly forecast and have done really well combining this with other indicators.
@@jessebrown1497 Ah yes volatility is not going anywhere. I definitely won't be surprised if its a long time yet before we see those pre-March 2020 levels sustained. I'm not big on technical analysis as most of what I do is rules based, trend following and trades in one day increments. I also only go long volatility through VXX when certain conditions are met like steep VIX futures backwardation. I just find long volatility is too tricky otherwise; I much prefer short since it is just a higher probability set up on VIX futures ETNs given how they are designed. I haven't really dabbled in cycles.
7:33
1. VIX is a forecast for ATM spx volatility or expected MOVE? for example : if VIX is 20. does that mean it's forcasting that ATM SPX in the next 30 days will be 20%? or is it forecasting the next 30 days SPX will move +/- 20% starting today. (if SPX is currently trading at 100$/share. expect to move +/- 20$ in the next 30 days)
2. "VIX is express in annual percentage". I dont understand this part. So if VIX is 20%. does that mean, VIX is forecasting what SPX will be doing in the next 12mo ? can we just cross the "30 days expected move " out of the definition to make it easier?
I think I might be able to answer 1 and 2 at once so let me give it a try :) the VIX is forecasting the expected move +/- over the next 30 days for the SPX index itself. It is always over the next 30 days starting from the moment the VIX reading is observed. This 30 day expected move is expressed as an annualized figure. This is where the confusion arises - it is a 30 day period, but expressed annually. When you divide VIX by root(12), you are 'de-annualizing' it back to 30 days.
This is a good article breaking it down a bit more: www.indexologyblog.com/2013/10/18/turn-vix-into-information-you-can-use/
@@TactileTrade the article cleared up everything. thank you so much. I just think VIX definition is so DAMN STUPID! stating that it's a 30 day expected volatility when it's actually 1 year. here's my definition of VIX for those that want me to explain it like you're 5yo.
VIX is a PERCENTAGE and it forecast the expected move of SPX in 1 year. so if vix is 20 and SPX is currently at 100. expect SPX to move +/- 20% in 1 year or +/- 20 points in 1 year.
1. If you want 30 days expected MOVE . here's a formula for you : VIX / √12 = X
2. NO , VIX is not expected ATM SPX volatility
3. NO , VIX has not an expected SPX movement in the next 30 days even though the definition said so. once again, definiton is wrong and stupid. it's 1 year . get that in your head
Let me know if there's any error in my definition of VIX
@@TactileTrade when you said " VIX is forecasting the expected move +/- over the next 30 days for the SPX index itself." This statement is wrong. I beg to differ, VIX is not expected to move for 30 days. It's 1 year. if you want 30 days you have to take Vix and divide by a square root of 12. So if VIX is 20. it means VIX is 20%. and this translates to 1 year expected move-in SPX. (+/-20% ). 1 year is the keyword . 1 YEAR!! 1 YEAR!! 1 year!!!
@@Dylan-zl4uk I mean, technically you are correct. It is saying SPX +/- % in one year. But the goal of the VIX is to forecast for a 30 forward looking period, not a year. It is just expressed as a year (I know, it can be a bit misleading). It is also the same with the other indices too - VIX3M, VIX6M, forward looking 3 month, 6 month volatility of SPX, but both of those are also expressed as an annual figure too. I guess CBOE designed it that way to be common-sized for easier comparison. Since many thing in the finance world are expressed on an annual basis, like interest rates, etc.
@@TactileTrade " the goal of the VIX is to forecast for a 30 forward-looking period, not a year" let me stop you right there. I beg to differ. VIX can forecast a 30 day period ONLY if you divide it by a square root of 12. if you leave it alone without doing any math or without / √ 12 then VIX is a forecast of 1 year period. read the article you send me again and again. it clearly stated that VIX is a 1-year forecast of SPX. Here's another riddle for you : the formula to forecast a 1 year is taking a 30 days options in SPX . Why not take 1-year SPX options to forecast 1-year SPX movement?
Would you share the spreadsheet for backtesting the trading strategies of VIX
Is this includes all vix
very clear and detailed introduction, thanks!
Glad you found it helpful! Thanks for watching
Great info!
Outstanding
Glad you liked it! Thank you
@@TactileTrade
NO , thank you
@@ivantsanov3650 Not sure I fully understand what you're asking. Can you explain a bit more?
@@ivantsanov3650 Remember that vol ETNs track VIX futures, not the VIX. This means when the futures remain in contango, SVXY can continue rising even if the VIX stays flat.
While you could short SVXY, I think this strategy still has the same challenges of buying VXX because while waiting for the big crash, SVXY likely would continue its slow climb, just as VXX continues its slow decline. Short selling also has undefined risk and on top of the slow bleed, you'll also be paying loan fees to your broker for borrowing the short shares.
To trade volatility :
Determine your volatility bias - whether you think underlying VIX futures are more likely to rise or fall - and then choose the most efficient tool for the job to add to your edge. For me personally, I think buying VXX would be more efficient.
Just found your videos. Really, really great content. Very interesting stuff. Please keep going. As a former journalist I would suggest you to tweak your titles a bit to get more viewers. Some examples. Lists are good: "7 tips for successfully trading the Fear-index", "5 biggest fears according to VIX-index", ... Letting the title show how to answer a question also always works: "How to trade the fear-index", "How to be gready when others are fearful - trade the VIX", ... Including specific numbers also gains interest: "Why the VIX pandemic-high reached 53.54" - these kind of titles makes us curious. Try to put some more effort into your titles and I would bet on you getting more views. Good luck!
Hey I'm so sorry I just saw this and realized I hadn't replied. I'll definitely take this into consideration, thanks!
thannk you.. yes it was helpful but for new traders i think they wont get it.. just my take on it..
VIX, volatility in general is definitely a lot of information to soak up. But I think anybody who wants to start trading must learn about volatility very early on because it tells us so much about how markets work. If somebody can't grasp a concept like volatility, then they may struggle as a trader.
@@TactileTrade agree :)
@@TactileTrade howevery JP came out and said they wont raise the interest rates.. so we are good for few more weeks.. :D guess tomorrow will be a good consolidation.. and a boom next week ;D
@@robingoransson The dip buying forces in this market are strong! I personally think all this QE might come back to bite at some point which has me a bit worried, but no reason to pull out of the market yet. I'll just keep following the binary signals and move to safety when needed but for now, I'm still long stocks and short volatility.