What is the VIX?

The Cboe Volatility Index, better know as VIX, is a real-time market index based on the live prices of S&P 500 index options. It projects the probable range of movement in the U.S. equity markets, above and below their current level, in the immediate future.

What does it measure?

The VIX Index is used as a barometer for market uncertainty, providing market participants and observers with a measure of constant, 30-day expected volatility of the broad U.S. stock market.

Vich Capital specializes in trading volatility as an asset class which is done by trading VIX based derivatives. We can really consider volatility as a separate asset class because:

1) It is not correlated to traditional equity and fixed income portfolios.

2) There is a wide range of instruments to trade.

VIX levels:

Up to 15: Low

Usually indicate optimism in the markets with expected range of +/- 2% - 4% Movement in the S&P500

15 - 20: Moderate

Usually indicate normal market environment with expected range of +/- 3% - 5% Movement in the S&P500

20 - 25: Medium

Usually indicate growing concern in the markets with expected range of +/- 4% - 7% Movement in the S&P500

25 - 30: High

Usually indicate turbulence in the markets with expected range of +/- 6% - 9% Movement in the S&P500

Above 30: Extremely High

Usually indicate extreme turbulence in the markets with expected range of +/- 8% - 10%+ Movement in the S&P500

Our Strategy ...

The VIX Index is not directly tradable, but it has paved the way for using volatility as a tradable asset, although through derivative products (such as Options).

The unique thing about the VIX is that it truly has a mean reversion characteristic. We’ve built a system to trade the VIX based around the fact that it will always return to its long-term at 20 points on average. We choose to look at the VIX as an oscillator moving along its long-term average and build positions accordingly. We improve on potential positions by timing our entries and exits using a proprietary model.

Having this mean reversion to 20 points, means it behaves completely differently to fixed income and equities. It means returns can be more consistent which results in a positive beta (Down Trend) during bull markets and a negative beta (Up Trend) during bear markets. And that’s why volatility should be in everyone’s portfolio.

We believe that a good investment and by extension of that, a professional portfolio manager, should be able to always adapt to preserve your capital when their benchmark goes through drawdowns.

If we were to compare our investment process to long/short equity investments, where managers have to bounce from industry to industry, speaking with different management teams and reviewing fundamentals which are always unique, ours is very different. It’s a very repetitive process which means one can really focus on becoming an expert in analyzing the VIX.

Being an expert isn’t about taking pure directional bets which can’t truly yield success - because a short volatility position can implode over night as it did in February 2018 and August 2024, and a pure long volatility position is expensive to hold and can yield negative returns as it did throughout all of 2017 and 2023. Timing is critical to maximizing returns, so we’ve built a proprietary model for timing entries and exits, and methodology for the best product and quantities to trade with. We assume volatility spikes can come fast and at moments notice, and so we maintain our portfolio with the ability to capitalise from such events. The model has a proven track record over 8 years which is good track record when you consider that a lot of the others who started around the same time didn’t make it through February 2018.

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Disclaimer: Past results are not necessarily indicative of future results. Vich Capital is a Private offering.

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