# Vix Trix

Dynamic Hedge blogs about correlation, relative value and quantitative analysis at http://www.dynamichedge.com

The \$VIX is a very misunderstood index.  One could go into all sorts of detail about how the \$VIX is calculated and the relative problems associated with trading volatility products.  Instead, here’s a dead simple calculation traders can use everyday.  Take the current \$VIX index calculation and divide it by the square root of 252 (number of trading days in a year).  Divide the result by 100 to give you the expected percentage change.  Then take previous closing price of the \$SPX and multiply it by the expected percentage daily change and you will have an approximation of how many handles worth of volatility you should expect from the \$SPX.

Based on the charts above, the calculation for today is:

32.85 / √252 = 2.07%

1192.76 * 0.0207 = 24.69

Tomorrow I’m expecting the \$SPX and \$ES_F to be bounded by approximately 24.5 handles 68% of the time.  As the day progresses you can adjust based on whether the \$VIX is expanding or contracting.

Remember, the \$VIX is not predictive.  The numbers are just estimates of expected volatility.

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