Harnessing the Power of the VIX Zones
Want to know what the market is thinking?
Here’s the one number that can reveal exactly what the market thinks is going to happen.
It’s called the VIX Zone.
As a quick refresher, the CBOE Volatility Index (or “VIX”) is one of the most widely used financial gauges in the world. It measures expected volatility in the S&P 500 over the next 30 days. In general, a VIX below 20 is considered low, and a VIX above 30 is considered high.
But we can break it down even further to give us an “expectation” range. Here are the four VIX Zones…
Zone 1: 9-12
Zone 2: 13-17
Zone 3: 18-23
Zone 4: 24+
The VIX spends about 25% of the time in each of these segments. So, half the time, the VIX is below 18. A quarter of the time, it’s between 18 and 23. And another quarter of the time, it’s above 24.
Once you know the zones, you can tell what the market is thinking, and there’s a lot of opportunity in that.
Zone 1 usually indicates a bull market. Nothing’s really happening to scare the market.
Zone 2 tells us there’s a little bit of action… some movement is happening. It’s what I call a “benign” bull market, where something is churning, but the “unsmart” money is totally convinced nothing’s happening.
When you hit Zone 3, it’s telling you something is wrong. In recent years, government policy has been a big driver here. This could be Russia invading Ukraine.
Zone 4 is called the “danger zone.” When we’re up in Zone 4, there’s usually a systemic issue, something that is a problem. Consider the Covid pandemic, when VIX hit an extreme high of 85.
When you’re in Zone 4, the financial system is melting down. Whatever the news is, it’s potentially disastrous. Danger Will Robinson.
Zone 1 and 2 are generally bullish grinding. Zone 3 and 4 tend to be very volatile, and the market can be all over the place.
Here’s the important question to ask yourself: Can VIX stay at this level? Any time you change zones, there’s a lot of opportunity.
In fact, just this week, we’ve seen VIX make some big moves between Zone 2 and Zone 3 and then back to Zone 2… which means there’s the potential that a big opportunity is brewing.
Mark Sebastian and I have been watching VIX for months now, and we’ve uncovered a Gamma Bomb beating right in the heart of the S&P 500… one that could detonate as soon as July 1.
Mark’s setting up a $100,000 trade that could be the opportunity of his career. Want in on this once-in-a-lifetime trade? Just click here.
May 26 2023
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