VIX Crush Trade

Entry Logic

• Entry trigger: Pre-planned economic event or earnings release with high implied volatility.
• Confirmation: Implied volatility is in the 90th percentile or higher.
• Timeframe: 1-day to 1-week.
• Location context: Not applicable.
• Market condition: High implied volatility, event-driven.

Exit Logic

• Profit target: Implied volatility returns to its mean.
• Scaling out: Not applicable.
• Trailing stop: Not applicable.
• Signal failure exit: Implied volatility continues to rise after the event.
• Opposite signal exit: Not applicable.
• Time expiration: Exit the day after the event.
• Momentum loss: Not applicable.

Stop Loss Structure

• Hard stop: Defined by the options structure (e.g., width of a credit spread).
• Soft stop: Not applicable.
• Max dollar loss: Defined by the premium paid for the options.
• Max percent loss: 100% of the premium paid.
• Structural stop: Not applicable.

Risk Management Framework

• Risk per trade: 1-2% of account capital.
• Daily limit: Not applicable.
• Weekly limit: Not applicable.
• Max drawdown: 15% of account capital.
• R:R requirement: Probability of profit should be above 70%.

Position Sizing Model

• Sizing approach: Position size based on the maximum loss of the options trade.
• Volatility adjustment: This is a volatility-based strategy.
• Conviction sizing: Not applicable.
• Scaling in: Not recommended.
• Scaling out: Not recommended.

Trade Filtering

• Market conditions to avoid: Low implied volatility.
• Specific setups required: High implied volatility before a known event.
• Instruments: Options on stocks with high implied volatility.
• Time restrictions: Enter the trade 1-3 days before the event.
• Chop/news avoidance: This is an event-driven strategy.

Context Framework

• Trend direction: Not applicable.
• VWAP relationship: Not applicable.
• MA relationship: Not applicable.
• Range location: Not applicable.
• Higher TF alignment: Not applicable.

Trade Management Rules

• Breakeven: Not applicable.
• Scale out: Not applicable.
• Add size: Not applicable.
• Fast vs slow moves: Expect a fast drop in implied volatility after the event.

Time Rules

• Optimal window: Around major economic events or earnings releases.
• Times to avoid: When implied volatility is low.
• Session notes: Not applicable.

Setup Classification

• A+ setup: Implied volatility above the 90th percentile.
• A setup: Implied volatility between the 80th and 90th percentile.
• B setup: Implied volatility between the 70th and 80th percentile.
• C setup: Implied volatility below the 70th percentile.

Market Selection Criteria

• Instruments: Options on individual stocks, ETFs.
• Volume: High open interest in the options.
• Volatility: High implied volatility.

Statistical Edge Metrics

• Win rate: 80-90%.
• Avg win: 20-30% of the premium received.
• Avg loss: 100% of the premium received.
• Profit factor: 1.5.
• Expectancy: Positive expectancy based on the probability of profit.

Failure Conditions

• When strategy fails: When the underlying stock makes a larger-than-expected move.
• Specific scenarios to avoid: Trading illiquid options.

Psychological Rules

• Mental discipline: Must be comfortable with the possibility of a 100% loss on the trade.
• Key mental discipline requirements: Discipline to only trade when the edge is present.

Advanced Components

• Regime detection: Not applicable.
• Filters: Not applicable.
• Correlation: Not applicable.
• MTF alignment: Not applicable.

Location

• Where strongest: Before predictable events with high implied volatility.
• Where weakest: In low-volatility markets.