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VIX and Trade Strategy: VIX trades its natural location inside the Yield Curve

VIX traded 3.51 points last week Vs SPX at 133 points. VIX matched SPX at 3.51 X 38 or 133.38. VIX traded 4.67 % lower than SPX. 

VIX trades its natural location inside the Yield Curve. All financial instruments to include currencies trade inside the yield curve. DXY and USD/JPY are best examples and offered at X 100. The percentage of the currency price must align with the percentage of the yields and yield curves to properly align financial instruments. 

The yield curve averages trades at 4.07 or right around the 3 year yield. The word around because rare days when an average falls exactly on a specific yield so to allow range for a financial instrument to trade. 

The 3 year yield at 4.04 falls between the range of the 2 and 5 year yield at 3.71 for the 5 year and 4.71 at the 2 year. 

To align our numbers: 3.71, 4.04, 4.07, 4.71. Yields X 5 = VIX. 

3.71 = VIX 18.55, 

4.04 = VIX 20.20, 

4.07 = VIX 20.35, 

4.71 = VIX 23.55. 

Overall, 18.55 to 23.55. 

The yield curve average at 4.07 factors to highs at 4.83 and 4.90 or 76 and 83 points higher. This offers VIX at 24.15 and 24.50 for next week and lows at 16.55. 

The numbers may re arrange to understand the tiny range to VIX / Yield relationsips. 

3.71 = 0.2695 = VIX 0.0539

4.04 = 0.2475 = VIX 0.0495

4.07 = 0.2457 = VIX 0.0491.

4.71 = 0.2123 = VIX 0.0424. 

An inverted yield curve is irrelevant to a daily and weekly VIX trade since the focus is not inversion but specific yields. 

VIX is performing its current natural market function.

Author

Brian Twomey

Brian Twomey

Brian's Investment

Brian Twomey is an independent trader and a prolific writer on trading, having authored over sixty articles in Technical Analysis of Stocks & Commodities and Investopedia.

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