Yesterday’s selloff pushed the (modified) TradingMarkets.com RSI(2) strategy to 100% long inverse VIX ETPs (like XIV or ZIV). I mention it here because it happens so infrequently, accompanying only the most overbought VIX. Even though the strategy is in the market about 30 days out of the year, it’s 100% inverse VIX only 5 days a year.
This is a short-term mean-reversion play betting on a falling VIX. 82% of these full allocation trades have been profitable. This is at least one positive sign for the coming 1-3 days.
Above are strategy results trading XIV from mid-2004 to present (read about test assumptions). Results for the entire strategy are in grey, versus results only when the strategy is 100% long XIV in blue. The strategy hasn’t been fully allocated often, but when it has, it has tended to be right.
When the strategies that we cover on our blog (including this one) 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.
Click to see Volatility Made Simple’s own elegant solution to the VIX ETP puzzle.
Volatility Made Simple