Volatility Trades UVXY, SVIX, VXX and Risk On/OffVolatility Trades
Do you trade symbols such as SVIX, VXX, UVXY or even UVIX? These are all volatility trades either long or short. I have come up with an indicator that I use to keep myself on the right side of volatility. It is also a good measure of RISK-ON/RISK-OFF.
Where am I in the Volatility Trade?
Full disclosure I am long volatility. It has not been an easy ride. I was long VXX call options on 3/26. On Liberation day, (4/2), got a sell signal, so I sold. Markets freaked out around 4:10pm so I bought UVXY after hours on my buy signal. I am still holding and moving my stop up.
The Indicator
I developed an oscillator indicator that charts the EMA of the VX futures roll yield along with the roll yield itself. It also has a quick-view table of the VIX, VX1, VX2 futures, the current roll yield and Contango/Backwardation status.
It is free, search on "UM VIX status table and Roll Yield with EMA"
This chart shows the VX1 futures with the roll yield indicator.
I use several other indicators for trades on this hourly chart but the heart of the volatility trade strategy is this:
Strategy:
When:
The VX futures roll yield turns down or red, begin looking for long volatility trades. This can take on a variety of formats including long VX futures, VXX, UVXY, UVIX or call options on any of the listed. Exit the long volatility, when the VIX futures roll yield turns green. You can proactively close any long position using your own indicators or judgement, but when the roll yield turns red to green, this is hard "out" or exit.
The VX futures roll yield turns up or green, begin looking for short volatility trades. This too can take on any number of formats including short the VX futures, long SVXY, long SVIX or call options on any of these.
Here is some real world trading of UVXY with this indicator:
Here are a couple real world SVIX trades. (Note I had to roll back to November 2024 for the examples)
Here is a chart of the S&P500 Futures with the same indicators:
Notice when the volatility subsides/roll yield EMA turns down/red, stocks tend to rise.
So when is a crash over??
When the VX futures come out of Backwardation and go into Contango with a positive roll yield, this "usually" leads to a risk-on environment. (This is the green fill above zero on the oscillator). I set an alert on the roll yield EMA and any cross of the roll yield zero line.
No indicator is full-proof. Do your own homework and use good money management. But if you trade any of the volatility ETFs/ETNs, check out this indicator. Keep in mind, these instruments different animals from stocks and other ETFs. These are based on a combination of the front two month VIX futures contracts, so the ETFs/ETNs do not trade like stocks.
My Chart Setup and Indicators:
Security - VX1. (VIX front month futures contract). ( you can use the VIX, but VX1 seems smoother with more data points given a 23 hour trading day)
Time Frame - 1 hour
RSI. - UM-Relative Strength index with Trending EMA, RSI 65, EMA 220, OHLC4
WMA - 65 period
UM VIX Status table with Roll Yield - 89 period EMA, table location lower right.
Additional thoughts:
I left much of this strategy open-ended. I am not going to tell you how to trade volatility because, well its volatile!
Adopt this indicator to your style of trading and timeframe.
Experiment with the settings and backtest it. Dates I suggest you review: 12/24, 7/24, 1/22, 3/22. If you can get the data, look at 2/20.
Let me know if it helps you out.
Use shorter time frames for long volatility - 1 hour is my goto. But always look at the daily for larger context.
Happy Trading.
