The VIX Fix

Amber Hestla-Barnhart, winner of the MTA’s Charles H. Dow Award, shows how to build a trading strategy around the ‘VIX Fix’.

The VIX Fix was designed by Larry Williams to overcome the limitations of the VIX, namely that it is only available for the S&P 500, Nasdaq Composite and DJIA. With the VIX Fix, Williams created his own synthetic VIX that can be used for any market (see formula below).

In the MTA’s latest eNewsletter, Hestla-Barnhart’s tests an option strategy that relies on the VIX Fix for a range of equity markets. Assuming profits are reinvested, Hestla-Barnhart says this strategy can produce an annual return of more than 10% a year, considerably better than a random entry strategy (5.5%).

 

See:
Larry Williams, “The VIX fix” (Active Trader, 2007)
Amber Hestla-Barnhart, “Fixing the VIX: An Indicator to Beat Fear” (Technically Speaking, 2015)

Formula:
VIX Fix = (Highest (Close,22) – Low) / (Highest (Close,22)) * 100

Find the highest close of the past 22 bars and then subtract the low of the current bar. The result is divided by the highest close of the last 22 bars. Finally, the result is multiplied by 100 to normalise the indicator readings. (Williams chose the 22 day period because it represents the maximum number of trading days in a month).