By coinnews 
00:00 Jared Blikre
A simple way investors can trade on the whipsaw moves we’ve seen from the CBOE volatility index. That is the VIX. Just over the past few weeks, I’m Jared Blickery, host of stocks in translation, and let me show you, uh, just a very simple trading system I concocted based on the VIX surges. So just to recap, when the VIX goes up, that usually means there’s some pressure on equities. And so sometimes with it spikes really high very quickly, that can be an actual buying signal. Now, the trade-off is, uh, sometimes you get a little bit early into the trade. So the rule I was looking at is when the VIX surges over 45, you wait until it then closes, closes under 30, and then you go long the S&P 500. Now, we’ve seen this happen 11 times going back to the very beginning of the VIX in 1990 and actually we didn’t have any signals until about 1997 because of the low volatility in the 90s. But here we see the results. One week out, we have median returns of negative 1.2% with results only positive 45% of the time. So one week out, this is not a great strategy to be buying the S&P 500 off of these VIX spikes. But one month out, you get a median return of 1.6%, 73% positive. One quarter out, the returns improve, still keeping a 73% positive. That’s uh, three misses over the last 11 times. And then at six months, we get really nice returns, 13.6% along with that same percent positive. Now, if you hold all the way out to one year, you get about 90% positive and returns approaching about 20%. And that just illustrates that it’s better to be a buy and hold investor and kind of wait and maybe dip in the waters when we see some of these pullbacks, not expecting these moves to really generate any immediate profits. Now, BFA just released a similar analysis where they looked at the same data set going back, and they found the same 11 instances when the VIX spiked above 45, but they bought on that. They didn’t wait for it to close under 30, and the near term results weren’t that great. But if you go out six months, they found in 10 of 11 instances that it was actually a great trade and it worked out 10 of those 11 times going out six months. So again, buy and hold seems to be a better strategy than trying to, uh, fade or enact these moves based on these VIX spikes, VIX spikes initially. I have another way of looking at the data here. This is a chart that only goes back to about 2008, uh, not all the way back to 1990, but it shows you some of these signals here. And for instance, in 2009, we had a signal that was kind of late. We had this long, long period of elevated volatility during the global financial crisis, took a long time for volatility to come back down below 30. But when it finally did, that was a great signal to get long in 2011, it looks like, uh, that was a little bit early as well. 2016, pretty good signal there. 2018, that was Volmageddon great. And then we had the pandemic, that was a pretty good signal. And finally, we just had one in, uh, 2023, and that was a little bit of a signal that also produced profits going out. Excuse me, that was 2024, produced profits going out at least six months. We haven’t even hit the year mark. So we don’t, we have not had recently a VIX close under 30, so we do not have that signal just yet. But again, over history, things tend to work out six months to a year down the line.
06:04 Jared Blikre
I’m Jared Blickery, by the way, and make sure you tune in to Stocks and Translation for more jargon busting deep dives. New episodes on Tuesdays and Thursdays on Yahoo Finance’s website or wherever you find your podcast.