AAII New England Chapter

This is a challenging post for me, because I am only now learning this. It is possible to use volatility in both options and stock trading.
Vix is the volatility index. When Vix is very high, the market tends to be oversold, so it is a good buy signal, although it should be followed up with a stop loss order in case Vix goes still higher.
Vix is also useful as a trend indicator. If vix is trending down, the market is trending up, and vice versa.

Vix actually is not a good predictor of future volatility. It usually predicts higher volatility than happens. At times selling OTP puts is a good strategy when the vix is high.

Another strategy that has worked in backtest is to continually buy out of the money one month vix calls. Buying calls that exceed the price of vix futures by 3 strike prices works best. This works because when severe market crashes, vix can spike up by more than 200%. That will make up for all the time that Vix calls expire worthless.

In no other security can you make money by continually buying calls on it.

A final way that vix options can protect you is by using them as a hedge. It is the same method mentioned above. You only need to buy options on 10 - 15% of the notional value of your portfolio to protect against crashes. In times of extreme uncertainty, the vix will spike so much that you will make back the money lost on your portfolio. Even if the strategy above ends up not working in the future, this will protect you against disaster.
I read about this in the book Options for Volatile Markets. I don’t feel I understand it enough to use, so I would recommend further study before using it.

If anyone has used this strategy, I would love to hear your opinions.