VIX Option Hedge Monitor

# VIX Option Hedge Monitor

Inspired by Cem Karsan

The VIX Option Hedge Monitor is a specialized indicator designed to detect unusual hedging activity in VIX call options that may signal impending market volatility or potential market crashes. By monitoring deep out-of-the-money (OTM) VIX calls that are 1-2weeks out—typically 150-170% OTM with premiums around $0.05-$0.10—this indicator identifies when institutional players are aggressively hedging for tail risk events.

## What It Does

This indicator tracks the intraday percentage change of a specific VIX option contract from its daily opening price and provides two distinct alert levels:

- **🟠 Orange Alert (200%+ increase)**: "Increased Hedging" - Indicates elevated hedging activity
- **🔴 Red Alert (400%+ increase)**: "Crash Imminent" - Suggests extreme hedging behavior often seen before major market dislocations

## Why This Matters

Deep OTM VIX calls are typically used by institutional investors as insurance against severe market crashes. When these options suddenly spike in price, it often indicates that sophisticated market participants are positioning for significant volatility. Historically, extreme spikes in these types of options have preceded major market corrections.

## How to Use

### Initial Setup

1. **Add the Indicator**
- Open TradingView and click on "Indicators" at the top of your chart
- Search for "VIX Option Hedge Monitor"
- Click to add it to your chart

2. **Find Your VIX Option Ticker**
- Go to VIX options chain in TradingView
- Find an expiration date that is more than 1 week out but less than 4 weeks out
- Locate a call strike approximately 168% OTM (these typically trade at $0.05-$0.10)
- Note the exact option ticker symbol (e.g., VIX260121C37.0)

3. **Configure the Indicator**
- Click on the gear icon next to "VIX Option Hedge Monitor" in your indicator list
- In the "VIX Option Symbol" field, paste your option ticker
- Adjust thresholds if desired (default: 200% orange, 400% red)
- Click "OK"

### Setting Up Alerts (Recommended)

1. Click the three dots (⋮) next to the indicator name
2. Select "Add alert on VIX Option Hedge Monitor"
3. Choose your alert condition:
- "Increased Hedging Alert" for the 200% threshold
- "Crash Hedge Behavior Alert" for the 400% threshold
4. Configure how you want to receive alerts (popup, email, SMS, etc.)
5. Click "Create"

### Ongoing Maintenance

**Rolling to New Expiration:**
When your current option is within 7 days of expiration, you'll need to update to a new option:

1. Find a new VIX call option meeting the criteria (1-3 weeks out, ~168% OTM)
2. Open the indicator settings (gear icon)
3. Update the "VIX Option Symbol" field with the new ticker
4. Click "OK"

The indicator will immediately begin tracking the new option.

## Understanding the Display

### Info Table (Top Right)
- **Option**: Current option ticker being monitored
- **Current Price**: Real-time option price
- **Day Open**: Option's opening price for the current trading day
- **% Change**: Percentage increase from day open
- **Status**: Current alert level (Normal, Increased Hedging, or Crash Imminent)

### Chart Elements
- **Blue Line**: Option price movement
- **White Line**: Percentage change from daily open
- **Orange Dashed Line**: 200% threshold marker
- **Red Dashed Line**: 400% threshold marker
- **Triangle Markers**: Appear when thresholds are crossed
- **Background Color**: Changes to orange or red when alerts are triggered

## Settings & Customization

### Adjustable Parameters

**VIX Option Symbol** (Required)
- The exact ticker of the VIX option you want to monitor
- Must be updated manually when rolling to new expirations
- Example: VIX250131C00055000

**Orange Alert Threshold** (Default: 200%)
- Percentage increase from day open to trigger "Increased Hedging" alert
- Adjust higher for fewer false positives or lower for earlier warnings

**Red Alert Threshold** (Default: 400%)
- Percentage increase from day open to trigger "Crash Imminent" alert
- Represents extreme hedging behavior

**Show % Change Line** (Default: On)
- Toggle visibility of the percentage change line

**Show Price Line** (Default: On)
- Toggle visibility of the option price line

## Trading Strategy Considerations

### This Indicator Is:
- A early warning system for potential market volatility
- A tool to monitor institutional hedging behavior
- Most effective when combined with other technical and fundamental analysis

### This Indicator Is NOT:
- A standalone trading signal
- A guarantee of market crashes
- A timing tool (alerts may come hours or days before events)

### Best Practices:
1. **Don't trade solely on this indicator** - Use it as one input among many
2. **Monitor throughout the day** - Set alerts but also check manually
3. **Consider market context** - High VIX environments may see more false signals
4. **Roll options weekly** - Keep your monitored option in the 1-3 week window
5. **Track multiple strikes** - Consider monitoring 2-3 different strikes for confirmation

## Technical Notes

- The indicator uses daily open as the baseline for percentage calculations
- Price data refreshes based on your chart timeframe
- Works best on intraday timeframes (1min - 15min) for quick alerts
- Requires TradingView access to options data for the ticker you specify

## Interpretation Guide

**Normal Operation** (0-199% increase)
- Market functioning normally
- Standard hedging activity
- No action required

**Increased Hedging** (200-399% increase)
- Heightened caution warranted
- Consider reviewing portfolio hedges
- Monitor closely for further escalation
- May indicate near-term volatility concerns

**Crash Imminent** (400%+ increase)
- Extreme hedging activity detected
- Institutional players positioning for severe downside
- Consider defensive positioning
- Review stop losses and portfolio allocation
- Historical precedent suggests elevated crash risk

## Limitations

- Requires manual option ticker updates
- Cannot automatically select optimal strikes
- Low liquidity options may show erratic price movements
- False signals possible during high volatility periods
- Past performance does not guarantee future results

## Support & Updates

For questions, suggestions, or to report issues, please leave a comment on the indicator page.

## Disclaimer

This indicator is for informational and educational purposes only. It does not constitute financial advice, investment recommendations, or trading signals. Always conduct your own research and consult with a qualified financial advisor before making investment decisions. Options trading carries significant risk and may not be suitable for all investors.

---

**Version**: 1.0
**Last Updated**: January 2026
**Compatible With**: TradingView Pine Script v5