Most VIX ETP Strategies are Struggling in this Market

Over the last month, we’ve tested a number of common strategies for trading VIX ETPs. And while we obviously can’t speak for all traders, based on all of my readings both academic and in the blogosphere, the strategies we’ve tested are broadly representative of how the vast majority of quantitative traders are approaching these products.

Most of these strategies are struggling badly this year. Below I’ve shown the year-to-date results of 9 strategies we’ve blogged about previously, trading XIV and VXX (read about test assumptions). For comparison, buying and holding XIV is included in grey.



The only strategy that’s shined this year is the revised TM RSI(2) strategy we profiled last month. That strategy trades too infrequently to be the core of a portfolio all by itself, and I have some serious misgivings about trading VIX ETPs using a Martingaling approach, but there’s no denying that the strategy has been extremely accurate when it does decide to put a toe in the water.

The DDN Momentum Strategy has also fared reasonably well, but bear in mind that that strategy rotates between both short-term (XIV/VXX) and mid-term (ZIV/VXZ) ETPs, so its middling performance YTD is more the result of the strong performance in ZIV this year, and less due to success timing long versus inverse volatility.

On that subject, below I’ve run the same tests, this time applying each strategy to the mid-term VIX ETPs ZIV and VXZ.


As one would expect, performance hasn’t been as poor because of the stronger performance in ZIV, but nearly all strategies still underperformed buy & hold.

Why the poor performance YTD? There have been three small volatility shocks this year (including the one we’re in the midst of now), and almost all of the strategies, at one point or another played those shocks incorrectly, going long volatility or to cash just as volatility returned to calm levels. I think this defensive approach to trading is the smart bet long-term, but in the short-term it can lead to underperformance during these minor volatility blips.

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Click to read more about all of the strategies covered in this report and to see Volatility Made Simple’s own elegant solution to the VIX ETP puzzle.

Note that when the strategies that we cover on our blog signal new trades, we include an alert on the daily report sent to subscribers. This is completely unrelated to our own strategy’s signal; it just serves to add a little color to the daily report and allows subscribers to see what other quantitative strategies are saying about the market.

Good Trading,
Volatility Made Simple

Posted in Real-Time Analysis.