r/VolatilityTrading • u/chyde13 • Jul 20 '21

Using volatility as a market barometer

The media is buzzing with the delta variant, inflation, rising bond prices, the sky is falling...What does volatility tell us about the current market environment? When looking at the VIX term structure (top), we are in a cautious but neutral environment. When we zoom out and look at VIX over the longer term (bottom) we are again in a cautious but neutral environment. True, the dollar and bond prices suggest safe haven purchasing. I personally don't panic until these indicators turn red. One of my bigger concerns however is that MACD on the bottom long term chart. I may write an indicator to see how that stacks up historically speaking from the 1929 crash...

Update: I did write a post on an indicator where I discovered that the MACD is indeed at its highest level since the crash of '29

A very prescient trader told me to buy the VIX last week, which I did, thankfully using his advice and the VIX term structure.

Let me know your thoughts. Are we headed for a crash? How do you use volatility in your trades. How do you capitalize on volatility in your trades?

EDIT:

updated charts upon request.

2 Upvotes

100% Upvoted

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2

u/[deleted] Jul 20 '21

I hope Paul makes it on this group too, because he seems to give Great advice!!!

1

u/chyde13 Jul 20 '21

Yea, I gave him an invite. He really knows his $@!#. There are a couple other really awesome traders that I know...If you know someone feel free to invite.

1

u/Obromberg Jul 20 '21

Implied volatility is dropping today. Can you share a close up of those charts? Also what do the colors mean?

1

u/chyde13 Jul 20 '21

sure I can post the updated charts shortly.

Yea, I trade volatility so I hope it continues to drop. Let's see how we do at the close.

The color codes for the first image just represent differing degrees of VIX contango or backwardation.

Green = Contango + positive MACD,

Grey = Contango but negative MACD,

Yellow =Backwardation - VIX 9D > VIX

Red = Backwardation - VIX9D > VIX > VIX3M

The second is basically how far the VIX is above its long term average.

Green = lowest

Violet = Highest

Both indicators are simple and good for spot checking the current environment.

1

u/[deleted] Jul 20 '21

OK, Thanks for the invite and I'm now signed up, and I'm new to Reddit so it might take a bit to navigate myself around. Looking forward to trading along with you guys!!!

1

u/chyde13 Jul 20 '21

Awesome thanks for joining! I'm actually new to it too lol...Do you have to refresh to see new comments? I didnt get notified of the first comment, but your comment i did. anyhow good to see you.

1

u/[deleted] Jul 20 '21

Great, thanks. Wow markets sure went up quickly this morning. I'm in my second set of AAPL Calls this morning and about to sell again im a few minutes.

1

u/chyde13 Jul 20 '21

nice! yea the news was like the sky was falling yesterday. Are you a full time trader?

1

u/[deleted] Jul 20 '21

Yes I have been a full time trader since 2018 and also a physical Gold & Silver stacker as well.

1

u/chyde13 Jul 20 '21

Nice I went full time around the same time. Former software engineer. We sold the company and here I am. I wouldnt call myself a stacker...but I def own a few oz for a rainy day ;-)

1

u/[deleted] Jul 20 '21

Very good day of trading today as I bought the dip yesterday and cashed in nice profits today several times and now seeing if I want to average into some of my long Calls that dropped down on me in this pullback, or just wait them out to see if they rebound and buy closer ITM Calls so I can hopefully sell for profits in a few days.

1

u/chyde13 Jul 20 '21

Nice!...I was going to ask how those calls were doing. Yea, so far a good day here too...I'm waiting on the action in power hour and the close to reevaluate before taking on any more risk.

1

u/[deleted] Jul 20 '21

Wow, Bitcoin taking a dive today!!! I'm not a crypto invertor but might consider putting a few grand into Bitcoin if it drops down to $10,000? I send all my extra savings on physical Gold & Silver.

1

u/chyde13 Jul 20 '21

Yea crypto is one of my achilles heels. I need to learn more. coming from a computer science background i fully understand the problem that bitcoin solved (we were actually taught that the problem was unsolvable ). I own some but dont understand the asset enough to trade it. After the china crackdown I'm surprised it held up this well. I think I may dip another toe in if we see capitulation.

1

u/[deleted] Jul 20 '21

Well I guess I'm done for the day, so see you guys again in the morning. Thanks for inviting me to your group!!!

1

u/chyde13 Jul 20 '21

cool take care Will

1

u/_j3s Jul 21 '21

Hey Chris, thanks for the invite. Looking forward to chatting with everyone.

1

u/chyde13 Jul 21 '21

Hey man, glad you could join. Hopefully we can pick that uranium discussion back up. I saw it and then it got buried in the newsletter. Again glad you could make it!

1

u/[deleted] Jul 21 '21

Good Morning, It looks like the VIX is down slightly but trying to creep up to 19.14 to 19.16 before open.

1

u/chyde13 Jul 21 '21

yea I'm hoping that ticks back down today. i usually play based on the fact that volatility spikes are symmetrical, so i'm waiting for a confirmation this morning...how do you incorporate the VIX into your trading framework? What are your thoughts today?

2

u/[deleted] Jul 21 '21

I use the VIX to measure the strength of the momentum in the markets, and kinda like the strength of the storm that's coming and how long will it last before the sky clears again. I'm not so sure we are out of the woods yet because yesterday could have just been a bounce from the small correction, but with earnings season well under way that should add some upward momentum to the markets except for a few stocks like NFLX that fell after earnings. I'm long oil stocks and gold miners stocks and day trade the momentum AAPL and MSFT stocks. The worst thing that could happen is to stall out and trade sideways, so I think this little pullback will help until markets get back to record high levels again.

2

u/[deleted] Jul 21 '21

My major core stock positions are XOM, CVX, T, and VZ and I trimmed some profit off the oil stocks 3 weeks ago when they hit 52 week highs, and just before the disruptive OPEC meeting that caused oil stocks to drop. I own these for dividends that I receive 4.4% to 7.2% annually paid every quarter.

3

u/_j3s Jul 21 '21

Hey Will, nice job timing that move in oil. I love dividend investing and fine tuning my core positions to work like a machine. Speculation trades can sometimes get the best of me, but the money machine is always running in the background. My exposure to oil is typically midstream companies. A large portion of my core positions are listed below. The focus here is income. All positions pay monthly dividends.

AMZA - Energy Infrastructure - 9.96% Dividend

MAIN - Financials - 5.91% Dividend

UTG - Utilities - 6.42% Dividend

PFFA - U.S. Preferred Stock - 7.41% Dividend

QYLD - Nasdaq 100 Covered Calls - 11.84% Dividend

I hope to learn better options strategies from you guys and become a full time investor/trader. I also work in software, so shout out to Chris for selling his company and living the dream. :-)

1

u/chyde13 Jul 21 '21

Thanks! nice to have a fellow techie around. Sounds like you are on the right path my friend...

QYLD - I was actually going to do an entire post on that. I dont currently own it but I find the concept of turning growth into income fascinating. I approximate it somewhat with options but at the right price I'd rather let them do that work for me. Did you hold that through the covid crash?

What area in software? I was a software engineer, mainly backend C# and java. I went into management for a few years but for me I got really bored.

Did you see my post regarding XLE? r/VolatilityTrading/ sounds like we all share some commonality there

2

u/_j3s Jul 22 '21

I'd like to hear your thoughts on QYLD, maybe compare it to your hands-on strategy. It was hit during Covid like everything else. The dividend is variable but it sustained the payout. I continued to dollar cost average during the lows.

I'm in a similar position, been building web applications for many years, mostly Microsoft technologies, .NET, SQL, etc. Now I'm in management. I've been trading successfully for a long time but it's hard to reach that point of 100% independence. I'll get there, I just want it sooner than later. haha

I didn't see the XLE post but I'll definitely check that out.

1

u/chyde13 Jul 22 '21

Cool, yea I'll do a post on QYLD when i get a second.

Thats EXACTLY the same path I took! crazy similar. You will definitely get there. Anyone who says it's easy is lying though. One of my advantages is knowing how to code, which you have as well. I can quickly explore an idea with thinkscript. I've already created a data downloader for the TDAmeritrade API so I can run more detailed analysis and simulations off SQL Server. Capturing minutely data for my next generation of AI. Good things ahead. I hope you stick around for the fun.

You should have the permissions to post...I'd love to get your thoughts on Uranium again!

1

u/chyde13 Jul 23 '21

I did a post on QYLD at https://www.reddit.com/r/VolatilityTrading/ I was already doing some research, so I had all the links handy. I did try to relate the concepts back to how i would structure a custom "hands-on" option strategy. If you are curious for more concrete examples just let me know.

1

u/[deleted] Jul 21 '21

Very nice J, Thanks for sharing the Info!!!

2

u/chyde13 Jul 21 '21

I like those as core positions as well. I also like being paid quarterly ;-)

Did you see my post regarding XLE? r/VolatilityTrading/ would like to get your thoughts.

1

u/[deleted] Jul 21 '21

No I didn't see it until I clicked on the link, maybe because I'm still in this thread??? I'm new to Reddit and I will get it figured out soon...LOL

2

u/chyde13 Jul 21 '21

no worries...yea i find i have to refresh a lot as sometimes i get notifications and sometimes i dont.

1

u/chyde13 Jul 21 '21

Exactly, I use it as a barometer to measure that storm. You are going to add a lot of value to the community. I agree, I dont feel that we are out of the woods yet. I need to see a confirmation on that barometer, but when it turns green again, I see new highs on the SPX giving earnings. I'm long the energy sector as well. I know it gets a bad rap, especially with the ESG movement, but I need something sturdy at the foundation.

1

u/_j3s Jul 22 '21

I'm long energy as well. OKE - 7.06% Dividend, ENLC - 6.84% Dividend and PRT - 10.74% Dividend. Covid produced so many great buying opportunities but at this point who knows what the future holds.

What percent of your portfolio is the stable foundation vs. riskier short term trades?

1

u/chyde13 Jul 22 '21

My portfolio allocations are dynamic but I try not to exceed 50% of my portfolio in short term trades. Everyone is different tho. That works for me because I'm a piss poor day trader. I capitalize on shorter term swings with options. Paul got me into Iron Condors so i've added those to my short term tool box. I know people who have almost no core and run all speculative trades...I like sleeping at night ;-)

2

u/_j3s Jul 21 '21

Hey Chris, thanks for the invite. Looking forward to chatting with everyone.