Saturday, January 23, 2016

Technical Analysis: Short Term vs Long Term Volatility ($VIX:$VXV)

Looking at short term volatility (VIX) vs longer term volatility (VXV), it "may" help you spot the bottom of stock price. For example, when the ratio gets above 1 it seems to indicate a bottoming process.[1]

VIX/VXV Ratio


The VIX is the more widely known index, representing the implied volatility of S&P 500 options that expire in 30 days. The VXV is the exact same index, except it represents IV for S&P 500 options that expire in three months.  The VXV is usually higher than the VIX, but not always.

Using the weekly chart (click to enlarge) of $VXV:$VIX ratio (dashed line) superimposed with SPY price (black line), the ratio seems to bottom before the price most of the time.  Note that the ratio (VIX:VXV) is inversed in the below chart.


As always, invest with your own research and risk.  This article is just for your information.

References

  1. Rare Event Signals A Short-Term Trading Opportunity: Buy Stocks
  2. VIX & VXV - Spread Chart and Quote - TradingView
  3. Weakest Indices create reversal patterns at 5-year support
  4. The VIX/VXV Ratio: A Quick Way To Review Volatility Contango
  5. The VIX and the Stock Market

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