How The VIX Based Buying Power Works

Explanation:

TastyLive recommends that we allocate buying power based on the VIX price so that traders do not overexpose themselves in periods of low IV. This was evident during the August 6th market crash and crazy volatility spike.

These are the buying power usage rules based on the VIX price that TastyLive recommends.

TastyLive Research Video On VIX Based Buying Power: https://www.tastylive.com/shows/market-measures/episodes/allocation-throughout-the-years-04-14-2022

Here's how the Options Auto Trader uses TastyLive's rules

• VIX 40+ = 100% of your buying power allocation limit set
• VIX 30 - 40 = 80% of your buying power allocation limit set
• VIX 20 - 30 = 70% of your buying power allocation limit set
• VIX 15 - 20 = 60% of your buying power allocation limit set
• VIX 15 or below = 50% of your buying power allocation limit set

Each percentage is derived from percentages recommended from TastyLive. We use 50% as our max allowable size since that is the most TastyLive recommends. Therefore, if VIX is trading at 35, that means we should allocating no more than 40% of our buying power. This translates into 40% / 50% or 80% of the buying power allocation that we set up for the Auto Trader.

Real Life Example

Account Size: $100,000

Auto Trader Buying Power Limit: $50,000 (50% of your account)

• VIX 40+ = $50,000 buying power limit (aka 50% of your total account)
• VIX 30 - 40 = $40,000 buying power limit (aka 40% of your total account)
• VIX 20 - 30 = $35,000 buying power limit (aka 35% of your total account)
• VIX 15 - 20 = $30,000 buying power limit (aka 30% of your total account)
• VIX 15 or below = $25,000 buying power limit (aka 25% of your total account)