VIX Composite Meter

12 sept.

The VIX Composite Meter is a custom trading indicator designed to help identify potential buy and sell signals based on market volatility, specifically through VIX options. The VIX, also known as the "fear gauge," measures market expectations of future volatility. This meter combines several factors — the VIX-to-SPX ratio, moving average deviation, Z-score, and momentum oscillators — to create a single, easy-to-read score that guides trading decisions.

How It Works
Composite Score: The meter calculates a composite score that ranges from 0 to 1 by weighing four metrics:

VIX/SPX Ratio: Indicates relative volatility compared to the S&P 500.
Moving Average Deviation: Shows how far the VIX is from its typical range.
Z-Score: Measures how extreme the current VIX value is relative to its historical average.
Momentum Oscillator (RSI): Helps identify overbought or oversold conditions in the VIX.
Color-Coded Signals:

Green Background: If the score drops below 0.3, the meter suggests buying VIX calls, indicating a low-volatility environment with potential for increase.
Red Background: If the score rises above 0.7, the meter suggests buying VIX puts, indicating a high-volatility environment likely to decrease.
Use Cases
Buy VIX Calls: When the meter turns green, signaling potential future volatility spikes.
Buy VIX Puts: When the meter turns red, suggesting current high volatility is expected to revert lower.
By using the VIX Composite Meter, traders can better time their entries and exits in VIX options, aligning with market conditions for potential profits in periods of changing volatility.