Disclaimer: The information found on this site is meant for educational and informational purposes only. Nothing on this site should be construed as a recommendation or solicitation to buy or sell derivatives or securities or to trade any particular strategy. Trading of derivatives or securities has large potential risk and you must be aware of and accept all the risks. Past performance of any trading system or methodology is not necessarily indicative of future results. No representation is being made that any account will or is likely to achieve performance results similar to those discussed on this website. Hypothetical or simulated performance results have certain limitations and do not represent actual trading.

Thursday, February 9, 2012

VIX & VIX Futures Diverges From FVE

Last weekend, VIX & VIX futures were in undervalued territory.  With the sharp rise in VIX & VIX futures from 17.95 to 20.0 thus far this week, they have quickly moved to "overvalued".  This does not mean, however, that the long position should be exited just yet.

FVE usually leads or is concurrent with the VIX, thus when the direction of FVE diverges from the VIX, it presents a good trading opportunity to bet against the VIX.  There are instances (20-30%), however, when FVE lags the VIX.  Could this be one of those instances?

Gray box & Black box trading record explained.

Black box hypothetical results are based on one predetermined trading rule using the FVE.  Gray box actual live account results are based on 3 trading rules, one each utilizing the FVE, FVE2, & FVE Futures indicators.

Discretionary judgement is used to determine which of the 3 trading rules are to be followed at any given time.  Furthermore, because execution on the live account is done manually, calling it a graybox system is more accurate.  The live account does not follow an automated system.  It would be interesting to see which method performs better over time.  Regardless, either the graybox or blackbox methods should deliver outstanding performance.

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