Forum Archive Index - April 2003

[Phaedrus <Phaedrus@techemail.com>]

Cap,
    Take a look at the attached chart comparing the VIX with the SP500 Index. 
Notice the very strong inverse correlation between the two. See how most every 
major peak or trough in the SP500 is accompanied by a trough or peak in the 
VIX. 
 Oversimplifying somewhat, the idea is to be Short when the VIX is rising and 
Long when it is falling. This is best accomplished by choosing a moving average 
suited to your preferred trading frequency. Some people use quite crude 
systems, such as go Long at >40 and go Short at <30.
 Anyone wanting to know more about this very useful index may like to read the 
following 11 page PDF document by Robert Whaley - he developed the VIX for the 
CBOE in 1993.
http://faculty.fuqua.duke.edu/%7Ewhaley/pubs/fear_gauge.pdf
        Regards,
                Phaedrus.

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