Random Walk Trading Professional Live Webinar VIX
Weeks trading – making a profit on the “fear index”
The markets have always allowed us to bet on fear or greed. Now we can bet on volatility …
A “casual walk” through the market is just another way of saying “noisy” walk. Daily price increases and decreases usually follow a path that is very similar to the volume of the hiss you get from a radio tuned to a channel without stations. One difference is that markets also have a “drift” – they tend to rise or fall on longer time frames based on macroeconomics, wars, fear and greed, and who knows what else. For reasons that are not clear to me, the amount of “noise” in the market is usually proportional to the square root of the time interval. For example, if the annual noise value is 12%, then the daytime noise will tend to be about 12% divided by the square root of the number of trading days in the year – about 250. The square root of 250 is about 15.8, so the daily variation in this the example would be 12% / 15.8 or about 0.76%. per-minute variations are predicted to be 12% / 346 (square root of 250 * 8 * 6) = ~ .035%. According to the Spy S&P 500 index, it will be about 4-5 cents. Looking at the charts for daily and minute highs and lows, these predictions look pretty close.
So, is there a way to take advantage of this level of predicted noise without wondering which way the market will “drift”? I think not, because if people understood this, they would write books about it sitting on their decks on Maui.
The big problem is not getting caught if the market drifts in the opposite direction of your position. Let’s say you buy SPY when you open at $ 130 with a sell order set at $ 130.99 (0.76% higher). Theory predicts that you will succeed with this strategy about 50% of the time on Day 1. If the market is “moving sideways” without a clear general trend or uptrend, then it is very likely that you will successfully close your order within a few days. However, if the market decides to tank at this point, you may have a very long time. wait for your sell order to be filled So, is there a cost-effective way to collect probable daily profits but not be destroyed if the market is tanking? One approach would be to buy puts at the current trading range support level. Your loss will be the difference between the buy-in price and the strike price of the put and the premium for the put. Another approach would be to hedge with $ VIX volatility options, which tend to go up when the market goes down. the advantage is that they are profitable if the market suddenly drops, no matter what prices the SPY index is selling at.
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- Lectures 0
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- Duration Lifetime access
- Skill level All levels
- Language English
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