VIX And VVIX: How To Maximize Your Trading Profits

VIX and VVIX: How to Maximize Your Trading Profits

VIX and VVIX: Learn How to Maximize Your Trading Profits

VIX has significant influence on options trading!

In fact, if you're a member of the option trade alerts, you'll know that I talk about VIX (and VVIX) every day!

VIX affects options prices in the following ways:

1) Increased VIX increases the prices of options

2) Existing put options that were sold when will was low will likely show a loss during large volatility expansion events

3) Higher VIX means that there's an expectation of higher future volatility

4) It's actually LOWER RISK to sell options during periods of high VIX because the available premium is higher

5) Combining VIX with VVIX is a great way to gain insight into market trend and stabilization

Can you trade VIX options?

Yes, you can, however, I probably wouldn't recommend selling naked calls on VIX unless VIX is trading over 35.

The reason is that there have been times when VIX has spiked over 50.

You can trade VIX in the futures market as well, however it can be dangerous because VIX can spike ~40% in one day.

In March 2020, VIX spiked to around 84.

It may be better to trade call spreads on VIX.

This VIX trading article is a good source of information if you'd like to learn more.

How do you use VIX in options trading?

When VIX is below 20, I'm very careful because a ~5% pullback in the S&P can cause VIX to spike by ~50%.

When VIX is elevated, I'm able to sell options and collect a significant amount of option premium.

As Warren Buffett says, it's best to be fearful when others are greedy, and greedy when others are fearful.

VIX is a measure of the fear in the overall market.

VVIX is a measure of the panic in the overall market.

When fear and panic are high, that's a good time to sell options and / or take ownership of large capitalization stocks with strong brands, if you believe that they're trading at depressed prices.

When fear and panic are low, and the market is in a euphoric uptrend, that's a great time to BUY OPTIONS and reduce future portfolio volatility.

How does the VIX affect options?

As VIX increases, options prices increase.

If you sell a large number of options when VIX is low, and then VIX expands, then your existing options will likely show a loss.

Additionally, because VIX tends to increase as the market decreases, your existing put options will likely have to be managed, and they'll also use up more buying power.

This is called options sequence risk - where many of your highly correlated positions may get challenged and your account may require additional buying power during a market selloff.

As a result, you may be forced to close out positions at the most inopportune time if you run out of buying power.

Can I use VIX to time the market?

Yes, you can use VIX to time the market, but remember: indicators are never 100% accurate.

You can have personal trading rules that you trade small when VIX is trading between 15 and 20. 

VIX is a major contributing factor in my decision to enter a trade.

I explain how VIX influences my trading, in detail, in my Options Trading Education Course.

Does the most successful options trading strategy use VIX?

The most successful options trading strategy definitely uses VIX when trading.

It's been said that, "If the VIX is high, it's time to buy". And I agree with this.

It's best to be contrarian.

And if the VIX is very high then it means that market participants are bearish and that the market may bounce back (with VIX reverting back to its mean).

Conclusion: VIX and Options Trading

VIX and VVIX are some of the most important indicators when trading options (they're the only indicators that I use).

It affects the amount of premium you collect as well as the overall sentiment of the market.

Through his BestStockStrategy.com platform, David Jaffee educates beginners and advanced traders on how to trade options and profit from the stock market.

David Jaffee provides a step-by-step guide to trade options so that you can learn how to earn consistent profits in all markets.

Instead of encouraging his students to trade too frequently like other options courses, David Jaffee teaches you how to act like an insurance company.

Options trading course reviews for BestStockStrategy.com speak for themselves, with countless students experiencing real-world success.

Learn more about call and put options by enrolling in David Jaffee’s options trading course or follow his actual trades with real-time trade alerts.

Frequently Asked Questions (FAQs)

How to buy VIX call options?

You can buy VIX calls options or VIX futures. You can even buy options on futures.

You can trade VXX as well as other VIX derivatives.

How to trade VIX?

You can sell options on VIX (puts and calls) as well as VIX futures, or options on futures.

What does VIX measure?

VIX measures the expected volatility in the S&P 500 index.

What is VVIX?

When trading, VVIX measures the "panic" in the S&P 500 index.

VVIX is a good indicator to gauge market sentiment.

What is the most successful options trading strategy?

This blog post explains the most successful options trading strategy

How does VIX affect options prices?

As VIX increases, the price of options increases.

If you've sold options previously, and the VIX increases substantially, then it's likely that those positions will show a loss.

About the Author David Jaffee

I (David Jaffee) help people become consistently profitable traders while minimizing risk. I graduated from an Ivy League University and worked at some of Wall Street's most successful investment banks. Subscribe to my YouTube channel for valuable videos - BestStockStrategy YouTube Channel​. Finally, if you're looking to Land a Finance Job, then I've put together the best step-by-step course at LandaFinanceJob.com. My personal website is DavidJaffee.com.

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