Chicken and Egg: Should you use the VIX to time the SPX? Or use the SPX to time the VIX?

2024 National Association of Active Investment Managers (NAAIM) Founders Award: 1st Place

31 Pages Posted: 30 Apr 2024 Last revised: 13 May 2024

Date Written: March 24, 2024


"Chicken and Egg: Should you use the VIX to time the SPX? Or use the SPX to time the VIX?" presents an exploration into the reciprocal predictive relationships between the S&P 500 Index (SPX) and the CBOE Volatility Index (VIX), with a particular focus on deriving actionable insights for market timing strategies. This comprehensive study challenges the prevailing market wisdom by positing that SPX action offers a more reliable basis for forecasting VIX movement than VIX action does in forecasting SPX movement.

The introduction sets the stage by questioning the traditional reliance on the VIX as a market timing tool, suggesting instead that SPX movements may offer valuable insights into future VIX trends. Numerous works are cited sampling publicly available research. Most past research has utilized VIX as an indicator for SPX. The study probes deeper to understand the extent to which one index can predict the movements of the other.

The paper then explains the history and construction of the VIX. It shows how the VIX has moved during all major market selloffs since 1990, which is as far back as our VIX data is available.

The next section is a discussion of implied and historical volatility (HV). It begins with a dialogue of the “Rule of 16”, and what different VIX readings actually represent. This section lays the groundwork for better understanding the interaction between SPX and VIX, and why the movements of SPX influence option traders and their willingness to pay more for portfolio protection. As it turns out, options traders are more likely to be reactionary than anticipatory.

At this point, the paper examines VIX versus SPX readings as short-term market indicators. Two types of studies are done here. One uses short-term RSI readings of 2, 3, and 4 days. The other looks at short-term high and low readings, from 5 to 25 days in length. Readings are calculated on SPX and also on VIX. Data is then examined which shows the SPX readings tend to be more useful in anticipating SPX movement than VIX readings are. The data is sliced several ways, and the answer consistently suggests SPX readings offer more robust edges for trading.

There is then a discussion of VIX-based securities and why traders and investment managers may want to consider them in a portfolio. One of the primary reasons demonstrated is that they have shown an incredible downside persistency. While counter moves can be sharp during market crises, VIX-based securities (futures and exchange-traded products) have typically gone substantially shorter periods between making new all-time lows than SPX has in making new all-time highs. The Great Financial Crisis of 2007-2008 along with the 2022 bear market are discussed in detail. Analysis implies that a well-constructed short-VIX strategy should have an edge over a long-SPX strategy when looking to avoid lengthy periods of drawdown.

With this in mind, studies are shown that are constructed in a similar manner to those that examined SPX movements. The paper again utilizes short-term RSI readings and short-term high-low readings of both SPX and VIX. This time it examines their value as indicators for VIX futures movements. Again it is found that SPX readings tend to act as a superior indicator. Data here is also broken down to examine behavioral differences when SPX is in a long-term uptrend (above its 200ma) versus a long-term downtrend (below its 200ma).

While the data tables show strong evidence that SPX readings could be used effectively to find favorable opportunities for shorting VIX futures, the final section takes it a bit further. To show the consistency that the edge has exhibited over time, a simple model is built using some of the concepts and indicators previously examined. The model makes it clear that the research is capable of serving as a core component in winning strategies that could be developed for investors.

Final analysis declares that SPX indicators, particularly overbought/oversold measures, possess a markedly higher predictive value for VIX movements than previously recognized. The paper challenges conventional wisdom and presents a compelling case for the predictive superiority of SPX over VIX in the context of trading both SPX and VIX-based securities. This sets the stage for further research while providing traders and investment managers tools to realize untapped potential in leveraging SPX action for more informed and effective trading decisions in the volatility space.

Keywords: NAAIM, Founders Award, Wagner Award, VIX, RSI, Mean Reversion, Rob Hanna, Quant, Quantifiable Edges

Suggested Citation

Hanna, Robert, Chicken and Egg: Should you use the VIX to time the SPX? Or use the SPX to time the VIX? (March 24, 2024). 2024 National Association of Active Investment Managers (NAAIM) Founders Award: 1st Place, Available at SSRN: or

Robert Hanna (Contact Author)

Quantifiable Edges, LLC ( email )

10 Boyden Rd
Medfield, MA MA 02052
United States


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