The 3 day rule
No, I did not invent the 3 day rule, but I like it. In the old days a stock that went up 3 days in a row was susceptible to a pullback. The 90’s put the rule on hold and QE messed with it as well. Basically it is the old tape readers logic that 3 days in one direction is not sustainable. With equity prices it is not a bad swing run timing thing, but it works very well for volatility, QE be damned.
Mark and I have several conversations a week about volatility, sometime several per hour. The basic rule for me is sustained changes in IV. Not future erosion in VIX but sustained changes in the what folks pay for options outside of the normal decay pattern. That 3 day change in IV always gets my attention and leads me to set up vol trades or close ones that I am on the wrong side of. We almost had 3 up days for VIX over the last 7 days but it did not hold.
9-10 VIX is really not a trade, unless you know how to time spread SPX index options, which our Pro Chat room does. It is near impossible to make good volatility money on the velocity of vol at a low VIX unless you know how. If you want to learn how to trade VIX, take our free Webinar on Oct 26th. You might learn something new.