Tags: pendergraft | vix | fear | index

'Fear Index' Has Been Short-Term Holy Grail

By Rick Pendergraft   |   Tuesday, 18 Oct 2011 09:00 AM

Anyone that has been involved in investing for any length of time knows that there isn’t a long-term Holy Grail for investors.

However, over the last two and a half months, the CBOE Volatility Index (VIX) has been as close to a Holy Grail as I have seen.

Since early August, the S&P has been caught in a range between 1,100 and 1,225. This range has presented frustration for long-term investors and opportunities for short-term traders.

With this range, the VIX, often called the " fear index," has been an incredible predictor of short-term moves. If you had bought the S&P 500 SPDRs (SPY), or better yet had you bought calls on the SPY, each time the VIX hit 45 and then sold it/them when the VIX hit 30, you would have done extremely well.

You could have added to your gains if you bought puts on the SPY or an inverse SPY ETF when the VIX hit 30.

To make things easier to see, I created a chart with the buy and sell signals — the green markers are buy signals while the red markers are sell signals. By the way, the VIX hit 30 last Wednesday.


rickoct18.JPG

Click to enlarge the chart.

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Anyone that has been involved in investing for any length of time knows that there isn t a long-term Holy Grail for investors. However, over the last two and a half months, the CBOE Volatility Index (VIX) has been as close to a Holy Grail as I have seen. Since early...
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2011-00-18
 

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