Random Walk Trading – Professional Live Webinar VIX

It is possible to make profits on the fear index. Markets allow us to bet on fear or greed. We can bet on it too. The market has a way of saying noisy walk. A path that is very similar to the volume of hiss that you get from a radio tuning to a channel with no stations is the result of daily increase and decrease of prices. Markets tend to go up or down based on macro economics, wars, fear and greed, and who knows what else. For reasons that are not clear to me, the magnitude of the noise on a market tends to be proportional to the square root of the time span. If the annual noise is 12%, the daily noise will be around 12% divided by the number of trading days in the year. The daily change is predicted to be 12%/15.8 if the square root is 15.8. This would be around 4 to 5 cents on the S&P 500 index. Eyeballing the charts for daily and by minute high vs. low looks pretty close.

Is there a way to take advantage of the predicted noise without having to guess which way the market will go? If people had figured it out, they would be writing books about it.

If the market moves in a direction contrary to your position, it’s a big challenge. You can buy SPY at opening at $130 with a sell order set at $129. 50% of the time you will succeed with this strategy on the first day, according to the theory. If the market is going sideways with no clear overall trend or trend up, the odds are very good that you would successfully close your order within a few days. If the market tanks you may have to wait a long time for your sell order to execute. If the market tanks, is there a cost effective way to collect the likely day-to-day gains? Buying puts at the current support level of the trading range is one approach. You have at least limited the damage if the market tanks. Your loss is the difference between the buy-in price and the put strike price. When the market goes down, hedge with $VIX volatility options which tend to go up. The advantage of these is that they are profitable if the market drops suddenly.