[module0000]

It's supposed to be, but I stare at it every day for 2 hours(for years)...and it just doesn't work out that way. Half the time moves initiate in the VIX, and only moments later does price move in equities.

Example: this morning at the open, the VIX rose 7 ticks in the first 20 seconds - there was almost no volume to the opening move(on the VIX), and price(NQ) was kicked down 20 points. When the NQ was at this bottom, the inside ask for the VIX changed from 150-ish to 700 - the NQ price moved back up 20 points, but the VIX did not move. The only thing that changed was the depth. Now the NQ is right back at the open...that same 700 ask faded back to 100-200, and the price dropped back another 20 points. Keep in mind, this is the first 5 minutes of the open. It doesn't get more chaotic or random than that period of time. However, as chaotic and random as it might seem, it's like this "most" days(say, 7 out of 10).

One of the large reasons that instruments(like the ES, NQ, or VIX) don't behave the way the way their prospectus might indicate...is humans. Another example, the NQ is supposed to reflect the Nasdaq 100 basket of stocks, weighted appropriately...yet it does not. There is a whole school of trading around "program trading", which is automated trading to fade price movements when this imbalance occurs. If the prospectus is to be believed, this imbalance should never occur. Human beings are the answer: a fund manager has a gut feeling(or some technical analysis, or signal) that equities will move up, so he shorts the VIX for 2,500 contracts, which will absolutely move equities up, at least temporarily. It's not the rules or defined behavior of either instrument - it is the intent of someone with enough margin to execute a 2,500 contract trade. That person(and persons like him/her) are the ones controlling those instruments - not an arbitrary set of rules, or the formula laid out in the instrument's prospectus.

After saying all that...also realize a lot of this is truly random. The moment in time that Trader Joe and Trader Bob both kick off 2,500(or 10,000 for that matter) contract trades is not known by anyone but those humans. So to them, it's not random, but to hundreds of thousands of other market participants, it's random as hell, and causes a lot of "whoah man! did you see that!?" moments. Those pesky humans get in the way of everything :)

[codexon]

From your experience, would you say the VIX futures are useful for anything other than traders taking chunks off the bid or ask moving the equities a few seconds later?

[module0000]

Oh certainly yes it is, but that's just not my use-case(anymore). In the past(when I had longer-lasting positions), the VIX was a useful indicator of "is this move real, or not?". Typically, if all 3 of the major equities(NQ,ES,YM) move in tandem over a 5-30s period, and the VIX inversely matches their movement - then that was my entry signal. When the VIX doesn't match, prices tended to return to their starting point moments later. If you speculate as to "why did the prices snap back?", my best guess was it was the result of profit taking or bad positions puking.

My current use of the VIX is more short-term. Over time, I found ultra-short-term positions worked out the best for me(in terms of profitability, stress, and opportunities per day - stress was #1).

[codexon]

Hmm that is interesting, would you consider yourself a high frequency trader?