Get Long SP500 When VIX Hits 30?

by: Mark Hines posted on: March 11, 2008 | about stocks: DIA / QQQQ / SPY    

Check out the graph above of the VIX versus the S&P500. The last three times the VIX hit 30, it was almost immediately followed by a short-term bull run in the S&P500. Interestingly, the way things are heading, we may hit 30 again this week.

If you're not familiar with the VIX, it's basically a stock market fear indicator. More specifically, it's the expected 30-day volatility on S&P500 options traded at the CBOE.

I wouldn't suggest making any trades based entirely on the VIX, but it is something to keep in mind, especially if you are sitting on a little extra cash in your portfolio.

This article has 3 comments! Add yours below...
Mark Hines

Mark Hines

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This article has 3 comments:

  •  
    Bumbie
    Mar 11 10:15 PM
    VIX and VXN are great contrary indicators, however your target is too low if you are looking for inter day extremes I'd recommend using 36.5 to 37.5 based on history
  •  
    seriously ?
    Mar 12 01:28 PM
    Yes... 30 is simply a very near term point of resistance with the VIX.

    I would agree with bumbie, this idea makes alot more sense with if the VIX pops over 35.

    Of course, if you want to make a contrarian play based on VIX data, why not just trade the VIX or options on it ?

    Currently I have VIX straddles at 25 that don't expire until August. I think this is a great way to play to uncertainty/fear that already here and will most likely increase.

    The SP moves much more slowly , and is increasingly growing weary of popping back up.

    We know that the VIX oscillates like hell before and at the beginning of major recessions ( the bigger the recession the more oscillation ) ...

    why expose yourself to the risk of having no near/long term recession, when you could simply make $$$ regardless of which way the VIX moves...

    Warren Buffet's annual letter even stated that the market could get very ugly very quickly. There are so many house of cards that could collapse right now, that I could not in good conscience recommend getting long much of anything right now.

    People are already discussion $200 oil !?! , we haven't had a hurricane in what 2-3 years ( anybody know what in the hell that is about ? ) and if the petrodollar every falls apart...well... happy VIX day to me.

    take home point:

    It won't take much at all for the VIX to hit 35, 30 is too easy right now.
    Even your graph shows getting long the SP at 11/12/07 might not have proved profitable. The trade would have required oracle like timing.

    I really like playing the VIX right now, just not in this way.

  •  
    Pilot Guy
    Mar 12 08:37 PM
    Are we so desperate that we are chasing random correlations between indices??
    And worse than randomly pairing indices.. only looking back for six months.
    Yikes.. lol
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