VIX Trading Strategies in July

We’ve tested 23 simple strategies for trading VIX ETPs on this blog (separate and unrelated to our own strategy). And while I 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 traders are timing these products.

There was a wide disparity in the performance of those strategies in July, based on how each responded to the VIX spike that began in late June and carried into the early part of the month. Many moved to defensive positions (cash or long vol) just as the VIX began to fall. Below I’ve shown the July results of all 23 strategies we’ve blogged about previously, trading the short-term VIX ETPs XIV and VXX. Read about test assumptions or get help following these strategies.



See the end of this post for links to all of the strategies included in this report.

The month’s top performing strategies all maintained a stubborn inverse vol position in the face of the VIX spike. That was a gutsy move for sure, and one that could have turned sour quickly had the Greek debacle du jour not sorted itself out so quickly.

We also took the same stubborn inverse VIX position in our own portfolios based on statistical reasoning. Actual stock market volatility didn’t support the level of fear that VIX futures and the spot were showing. When those data points conflict, it’s usually best to side with actual realized vol over measures like VIX futures and the spot, as historically, they’ve proven themselves bad forward-looking predictors.

We ended up underperforming in July however after reducing allocation for four days during the subsequent market recovery for the opposite reason as was described above (i.e. our model read implied vol as being too low relative to historical vol). That was an untimely move as the VIX spot was able to maintain readings in the 12’s through most of the remainder of the month.

XIV and VXX are of course not the only show in town. Below I’ve rerun the same tests, this time applying each strategy to the less popular (or is it “underutilized”?) mid-term VIX ETPs ZIV and VXZ (click to zoom).

20150803.03     20150803.04

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

Good Trading,
Volatility Made Simple

Stategies included in this report: First vs Second Month Futures, VIX vs Front Month Futures, VIX vs 1-Month Constant Maturity, VIX vs VXV Indices, V&M’s VIX:VXV Ratio, TM’s RSI(2)DFTB’s StDev Strategy, DFTB’s Spread Strategy, DDN’s Momentum Rotation, DDN’s VRP Strategy, 10/100-Day MA Crossovers, TWP’s Quadratic Fit, NAS’s VIX Futures Momentum, S&P 500 50/200-Day Crossovers, Brute Force Optimized VRP, LI’s Bollinger Band Strategy, LI’s SMA Crossovers, Evolution Capital Strategy, TTO’s VRP Strategy, MS’s Mean-Reversion, Macro Investor Strategy, QT’s VXV:VXMT Strategy, TTO’s Optimized VRP

Posted in Real-Time Analysis.