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The newest volatility indicator just dropped yesterday, Monday, April 24.
Although it is not intended to replace the VIX, VIX1D has its own unique value as an independent measure of daily market sentiment.
VIX1D will be an insanely useful tool for both day traders and swing traders. Here's how it works and why I'm so excited about it...
VIX1D measures the implied volatility of two sets of options: those expiring at the end of the day (0 days to expiration) and those expiring at the end of the next business day (1 day to expiration).
At the start of the day, the index emphasizes the 0 DTE options, and as the day progresses, it places more emphasis on the 1 DTE options. As a result, the index is expected to increase gradually as the net duration of the options moves from 6.5 hours and 30.5 hours to 24 hours. This creates a "daily reverse weekend effect" as options that have gap risk become a more significant part of the equation, while options that do not expire get excluded from the index.
Monday's inside day is a good example of how the VIX1D can move on a typical day. Understanding how the index moves on a daily basis is crucial because when it breaks the trend, it could indicate a significant change in the market.
On Monday, SPX and VIX1D moved together, and the wick on the VIX1D just before 9:45 am CT(I am in CT not ET) indicated that the surge in selling was over. If we see a rally that breaks the pattern of lower highs and lower lows, it could potentially indicate that we should believe it if volatility does not spike again.
For people who do not want to day trade, watching how the index moves against VIX could be useful. When the index breaks above VIX, it could be an indication of something bad happening, which could continue into the next day. This would be a sign to close short options.
The VIX1D index can be helpful for identifying local highs and lows, and I will continue to watch it closely. As I learn more about this index, I will share my findings.
VIX1D might be VIX's cool cousin, but VIX is still a powerful behemoth of an indicator.
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The post This New VIX Index Will Shake Up the Volatility World As We Know It appeared first on The Profit Takeover.
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