For the last couple of weeks, we have seen a correlation between the $VIX (CBOE Market Volatility Index) and the US stock market. We have noticed that the $VIX is ranging between 21.22 and 15.84/13.91. We have been posting on Twitter these levels for the last couple of months now.
When the $VIX reaches the resistance, we go long in the US stock market and exit our short option positions (or tighten our stops). When the $VIX reaches the support, we go short in the US Stock market and exit our long positions. The trader does have an option when the resistance/support is reached to tighten their stops to protect their profits instead of exiting the trades. Here is the last twitter post from Feb 12.
Today, we are very close to the major support at 13.91. There is a possibility of breaking this support so we will tighten our stops on our bullish positions and we will now start to look for bearish positions in the US stock market. Here is the current chart for the $VIX:
2015 is a trader’s year. Volatility is here and you have to “steer” through it and not to give up your profits. The worst scenario for a trader is to go “round trip” where you were profitable in a trade and then had to give it back!
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